@Daniel Levine
Here's how we underwrite ours leads to see if they are deals worth doing:
1) Determine the average of SOLD MLS comps (just to be clear, each comp has to be as similar in size, bed/bath, condition, lot size, parking, etc as possible, and always within a distance that makes sense 1-2 miles rural, 0.25-0.5 miles urban - the more familiar you are with your market, the more you will know how to adjust for any deviations - and it must be sold within the last 6 months) - minimum of 3 comps, we take the average of all the comps and then take 10% off. This is aggressive and usually disqualifies us from the majority of the deals because most investors assume price appreciation/stability (moreso now than ever) which leads to higher offer but lower returns to the investor. Simply not worth it to us, especially if we're risking our money, private money, bank money, our contractors getting paid, and continuing to have a business if the market takes a turn for the worse.
2) Learn your soft costs - this will take a while if you've never done a flip, but there are plenty of ways to determine them and you want to be sure you know as many as possible. Then add 10% to it for the costs you won't know about until you actually do the work (e.g. city/town-specific fees, etc).
3) REHAB costs... another very difficult piece if you've never done one. So how do you determine it for your area. I recommend networking with investors at REIAs and asking them what they pay $/sq ft and how they source their contractors. Folks with lower $/sq ft will be the folks who have full time crews and have fixed costs, so the more deals they do, the less their $/sq ft (obviously, it never gets to 0 and there is a base). Err on the side of caution and do like the comps piece, find 3 similar investors and find out what their rehab costs were and be sure the scope of work and finishes match. A fluff and buff rehab is way less than a full gut obviously. So get averages like in #1 above and then be comfortable, maybe add 10-25% as contingency since you've never done one. You will very much appreciate this because something will come up during the rehab that you did not budget for.
4) Put it all together, in a spreadsheet hopefully, and make it your deal analyzer template. We have our offer process down to a fairly accurate science (I still have some ways to improve our models, but i'm also a perfectionist). Be sure you include line items for points, interest, etc, depending on how you are going to finance your deals.
It is not easy to get a good deal, at least in our market. case in point, we took over 200 calls to find one that worked. but we know it will work, we know it can withstand any major hiccups on the rehab and/or market end, and we know anyone we go to will lend on it.
And because funding a deal is the #1 concern for most new investors, wouldn't it be great to have a well-thought out story about how you underwrote your deal conservatively and accounted for the fact that you are new to the game and you have a story for each line item besides "my best guess based on....????" (sorry, not meant to offend).
I know a lot of the comments, mine included, can seem harsh. You are learning and you're doing the right thing posting here. Take these comments in stride, keep working your models, don't do this particular deal, and you will find each potential deal will become much easier to analyze and you will have much more confidence in yourself and be able to weed out these time-wasters much faster, allowing you to process more leads.
My other opinion is that if MLS deals are getting multiple bids, it's time to find new lead sources. I don't know your market, so I could be wrong, but the general consensus is that the market is back in most places so there's going to be too much competition from DIY'ers bidding, uneducated new investors, etc.
Good luck!!
