West DFW REI Group

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West DFW REI Group

Evaluating A Real Estate Investment Deal


 Evaluating A Real Estate Investment Deal

We talk with many people looking to buy real estate investment properties in Dallas Fort Worth and the surrounding areas. Some of them know what they're doing when evaluating a real estate investment deal, and some are still in the learning process.

But, since our entire business is finding great deals at deep discounts... and often passing those deals onto real estate investors like you... I thought it would be a great idea to share with you some resources to evaluate a real estate investment deal.  This works in any market... Dallas Fort Worth and surrounding areas, Texas, and any other states across the country.

When you boil it down... evaluating a real estate deal is a pretty simple process.  If you're looking to buy real estate as an investment, wholesale properties, hold them for rent... whatever, one of the most important parts is "buying it right" (i.e., not overpaying).

So let's dive in.

What Goes Into Evaluating A Real Estate Investment Deal - (for single-family houses)

There are just a few main elements when you're evaluating a deal.

  • Cost of repairs needed to get it back up to good condition. The after-repair value (ARV) of the property (what it's worth and can sell for today once it's fixed up). If you're going to buy and hold for a rental... you need to know what you can rent it out for and what your "debt service" (mortgage payment) will be.  Knowing this makes sure you're buying so the property cash-flows each month.

There are other things you can (and should) look at too... but those 3 are the main important things to look at first.

Cost of Repairsevaluating a real estate investment deal

One of the things you should do when you are looking at a property is to find out how much it'll cost you to fix it up to a point where it's in great shape.  In other words, the cost of repairs.  This could be a new roof if it needs it, foundation, wiring, carpet, paint, a new kitchen, a yard, and maybe even more.

To find a good estimate of the cost of repairs, the best advice we have is to get to know a contractor or two in your area and have them walk through the properties with you the first few times... have them quote out the repair cost... and build that into your offer.

Another option is using a software tool such as the premium website upgrade to the free site all West DFW REI Group members have.  This tool can be opened on your phone or tablet and you can do a repair estimate as you walk through the house to give you a ballpark repair estimate.  Learn more here.  

Here's a cool free tool for helping you evaluate your repair costs and prepare a Private Lender package called RehabValuator.  https://tvallc.isrefer.com/go/RehabLite/MasterRE/.  Check it out and see what you think... it's free. If you like what you see there is also an upgrade available to the Pro version for a small investment.

After Repair Value (ARV)

This is simple, but many investors get stuck on this part.  This is essentially what you could sell the property for today... after you repaired it and brought it up to a great condition.  This is found by finding out what other similar or like houses in the same area or neighborhood are selling for.  NOTE: Don't look at the "Listing" price... look at what houses similar to yours have SOLD for in the past 3 - 6 months.  This helps you determine how much you could sell that house for if you had to... right now.  You never want to overpay to a point where you can't sell it for a profit in the next 3 months.

How do you find this?  The best comps come from the Multiple Listing Service (MLS), which is accessible by realtors and appraisers.  If you do not have access to MLS, talk to a Realtor that you know... or an appraiser.  Heck, if you don't know one... call a few today... tell them you have a property that you're potentially selling in the near future... and ask them what they think it should sell for.  The problem here is that you are controlled by the realtor's time available to pull comps.  If investing in Texas, you can also pull your own MLS comps using the following services.  They don't allow you to access actual MLS yourself however they pull comps data from MLS and present it to you and are "MUST-HAVE" tools for your REI business.  Real below.

Propelio - Propelio is real estate investor software to help you buy more properties. It generates motivated seller leads, analyzes properties, provides true MLS COMPS, and organizes your business with online tools and apps built for teams or solopreneurs. Be sure to Watch the DEMO, start your 14-day free trial, and save 50% off your first two months using this link. Unless you are a Realtor with MLS access, you NEED THIS TOOL in your REI toolbox!

Buy And Hold Properties For Rentals 

So, you're going to buy and hold properties for rental?  Great!  You don't need to worry about what it'll sell for immediately.  You need to know if it'll pencil out on a month-to-month basis.  You know... cash flow.

So, talk to a mortgage broker, hard money lender, or private lender and determine the monthly mortgage payment for that specific property.

Then find out what you can rent the property out for every month.

Then, you work backward... and find out at what purchase price your mortgage payment will be low enough so you can make the monthly cash flow you need to make on the property.  Be sure to figure in other expenses like property taxes, maintenance expenses, property management fees, and keeping money in reserves for future repairs.

So, your offer price here should be:

Monthly Mortgage - Monthly Rents - Operating Expenses - Taxes & Insurance - Monthly Cash Flow = Offer

Simple enough, right?

The cool thing is, the more you bring into the deal in cash... the lower your mortgage will be.

Making An Offer That Gets Accepted

We've been talking about how to look at the numbers and analyze a real estate deal.

From there, make an offer.  Many times the properties we inform you about will already be so deeply discounted that we get multiple offers... often above our asking price.

So, if you really want a property, find out the bare max you could buy the property at... and offer that.  Otherwise, you may lose the deal because someone else is likely making an offer too.

With that said, the golden rule in real estate is never to overpay for a property. That's why our own deal analyzing criteria is so darn strict... and why our buyers (like you) get such great deals.

I hope this little tutorial has helped you sharpen up your real estate deal analyzing skills... and we look forward to working with you in the near future.

To view additional BLOGS topics on our site, click HERE.

If you have any questions at all... don't hesitate to contact us anytime for anything.

Happy Investing!

To Your Success!



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