Analyze an Investment Property in 3 Steps (Use THIS Checklist)

analyzing a property successfully is what sets us apart as successful Real Estate Investors bad Investments can be an expensive mistake do you want that to be you I didn't think so I'm Amy Mauri and today we're going to be diving into the essentials that we need in our real estate investing arsenal when it's time to analyze a deal so what does specifically our property analysis checklist look like what do we need to get out there and confidently analyze the deal before we move forward with with next steps this one toolbox can make all the difference in your real estate investing success so let's break it down but first meet my friend Dave Dave literally wrote the book on real estate note Investing For Bigger Pockets and his company PPR Capital management wants you to be a part of their real estate investment fund no tenants no maintenance or property managers just headache-free cash flow Dave and his team at PPR invest in mortgage notes and Commercial Real Estate Nationwide and since 2007 Dave's team has never missed a passive monthly income payment looking for cash flow accredited investors can get started at invest withth PPR dcom that is invest withth PPR dcom now let's get back to the show now we're going to break down exactly what the very first step is when you're ready to start analyzing deals to determine if they're even profitable the very first thing we want to do whether we're brand new Real Estate Investors or experienced is focus on the Loc ation so I'm going to use the term target market so which pocket do we want to focus on because that's the pocket we're going to put all of our energy into looking for deals a very common mistake and I made this mistake as well as a brand new real estate investor is focusing on your entire city or your entire County or multiple neighborhoods at once so to streamline this process for you in order to set yourself up successfully when you're out there and you're ready to start submitting offers and you're looking for deals pick one ZIP code really start to understand that zip code the demographics who your customer is are they young families are they older families getting ready to sell because their kids went to college what's the night life like are there restaurants bars activities do these zip codes have big yards or small yards are they kid-friendly or not are they individuals who are just graduating college so they don't really care about some of these things so really focus first first on picking one ZIP code understand the demographics the growth that may be happening in that area talk to multiple experts talk to multiple Realtors and then pick one ZIP code to start even though in some cities this ZIP code may be very Urban and others it may be very rural that's okay start with one ZIP code now it's time for our property walkth through this is the exciting part whether we're new or experienced always take your camera your camera can be a phone every time we walk through a property we want to record it we want to capture the outside the inside to help you later when you're doing your desktop analysis so conduct a thorough inspection you want to understand the overall condition of the home when you start on the outside maybe take some sort of a checklist with you if you have it so I have what's called a repair estimator for those of you who are newer to real estate investing and maybe you don't have your own repair estimator or rehabing checklist that's okay start to create one start with your own house start with your neighbor's house a friend's house and literally walk around the inside and the outside of the house and start to make a list of all the different things that may be damaged in a property and just create a checklist so even as a brand new real estate investor and even now 10 years in every time I walk a property I take my repair estimator with me and my repair estimator has a bunch of items that a house may need repairs maybe it's the roof maybe it's the siding maybe it's things like Landscaping the garage door the front door windows so start to create a checklist of all of the exterior characteristics of a property and once you're done walking that property and casually recording it on your cell phone then you want to go into the property and do the same thing so look at the ceiling look at the walls look at the floors depending on what you studied when you identified your target market does the kitchen need a high-end makeover or just like an average middle income type of a makeover it's mostly going to be kitchen bathroom flooring paint kitchen bathroom flooring paint when you're in the middle- income price points look for signs of structural damage now look some of you may be so new that you're not sure you know if I blow out this wall which we all want to do do I need a beam to hold the rest of the house up if you're not sure just overestimate that's okay when I first started investing in real estate I was overestimating every single one of my properties by 25% and that wasn't on purpose that wasn't a buffer that was a mistake because I wasn't sure what I was doing the more you practice the better you will get do you need to put in new floors can you just do an overlay can you sand and stain do you want to paint the entire house usually when we're renovating a house we're going to want to at least paint it all to make it look fresh if the windows are fine and there's no damage on the Windows there's no need to replace the windows so walk through the inside of the house take videos as you're narrating of what you're walking through and a lot of us as brand new Real Estate Investors we're not going to understand the mechanics inside the house does it need all new electrical work all new Plumbing all new HVAC I don't know so if you're not sure then take a picture of all of these mechanics in the closets whatever is exposed so later you can walk through with a contractor remember all of these flaws May raise a red flag with this property but you don't want any surprises and guess what the more you practice it and the more red flags you see more than likely the better the investment right there's a saying out there that says mold is gold a lot of people are scared of things like mold later we'll talk about building your power team when you find someone who knows how to treat mold that's not a big deal so the more red flags the better just make sure you account for them all right so that is everything you need in order to complete your property walk through and make sure you're very diligent and thorough during that walkth through we don't want to have any surprises now we're on to step three which is our financial analysis A lot of the time I like to refer as a desktop analysis so this is where we go back home we walk the property we take all of our notes and our videos and we start to Crunch our num and determine whether or not this deal makes sense this is one of the most important items in our financial analysis we have to understand how to analyze deals so understanding the return on our investment as a percentage of the deal not a dollar amount is very critical so here's what I mean there are so many investors new and experienced who will reach out to me and say for example let's use a flip as a strategy hey Amy I found this amazing deal I can buy this house for $100,000 and I think I only need to put in like $25,000 and I can sell it for $200,000 what do you think and my response is always the same it's like well I don't know you've only given me three variables the purchase price the renovation cost and our resale value so we have so much that goes into our financial analysis that without all of those other variables it's hard for us to determine whether or not we have a deal things like what are our holding cost what's the cost of our Capital what are our taxes our utilities every time we acquire a property whether it's a single family home or something else we have to get insurance right so all of these things have to be included as a part of our financial desktop analysis before we even understand whether or not we have a deal so have some sort of a property analysis template a deal analyzer whatever it is that you use that spits out a number at the bottom and tells you yes this is a deal so for me I have a property analysis template and what that is is I basically created this onepage deal analyzer and it takes into account all of these cost variables even things that we don't think about like if you're renovating a condo you know the association and the dues that are a part of the deal and at the very bottom of my spreadsheet it's going to spit out a number and I have both a dollar return and a percentage return it's a very common mistake for new and experienced Real Estate Investors is there just going to focus on the dollar return so let's say for example we plug all the numbers into your deal analyzer and it spits out a number saying you're going to make a $75,000 return people get very excited when they see $755,000 cuz most of the time this is in less than a year that $775,000 may only equal a 9% Roi return on our investment if it's only 9% it's actually not a deal so what I started doing when I first began investing in real estate was I never looked at the dollar amount I only looked at the ROI as a percentage of the deal and especially as a brand new real estate investor I only moved forward if it was a net Roi of 15% later once I really knew my numbers I built my power team more on that later I was comfortable going down to a 10% Roi the reason why this is important is we want to minimize our risk and avoid the costly mistakes if you're out there buying a house that's going to retail for $600,000 a $75,000 projected return can be wiped away in one or two change orders so it's all relative to the price of the house that's why Always focus on the ROI as a percentage of the deal after we've completed our desktop analysis we've crunched all of our numbers we've gone through our checklist for every single cost variable that goes into the deal one other strategy for us to keep in mind is the ability to have multiple exit strategies so if you're out there and you're analyzing a deal that you want to flip for example consider analyzing that deal as a rental property maybe it's a short-term rental a midterm rental a long-term rental if for whatever reason there are shifts in the economy that doesn't matter we just want to be able to Pivot and change our strategy so if we're not going to make as much on a flip maybe we decide to hold it and turn it into a rental so the ability to have multiple exit strategies is also something you may want to consider that's a wrap folks we're going to focus on three things as it pertains to your property analysis template your checklist for walking deals and looking for red flags which is number one identifying your target market naring it down to one ZIP code number two is your property walk through walk the outside of the house the inside of the house take photos take videos create some sort of a checklist to understand what may or may not need to be replaced or repaired then step three is your financial desktop top analysis take all those cost variables put them together into a spreadsheet run your numbers and determine is your net Roi 15% or more before you get out there and submit your offer thank you so much for your time I'm Amy majuri you can find me on Instagram at Amy majury if you found this video helpful like And subscribe the Bigger Pockets channel for more videos just like this or go to biggerpockets.com to check out all the amazing tools they have for new investors if you have any questions drop them in the comments below and have a great [Music] [Music] [Music] day

Channel: BiggerPockets

Views: 37,365

Keywords: investment property, how to analyze an investment property, analyze an investment property, analyze a rental property, how to analyze a rental property, rental property analysis, real estate, real estate investing, invest in real estate, how to analyze real estate deals, analyzing real estate investments, real estate deals, rental property, income property, rental property calculator, investment property calculator, buy your first rental property, biggerpockets, amy mahjoory

Id: aKKQqu-17M4

Length: 11min 50sec (710 seconds)

Published: Thu Mar 21 2024