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
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 Repairs
One of the things you should do when you are looking at a
property is 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, carpet, paint, a new kitchen, yard, maybe even more.
To find a good estimate of 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.
After Repair Market Value
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 houses in the same area are actually selling for. NOTE: Don't
look at the "Listing" price... look at what houses similar to yours
have actually sold for in the past 3 months. This helps you determine how much
you could actually sell that house for if you had to... right now. You never
want to over pay to a point where you can't sell it for a profit in the next 3
How do you find this? There are services out there that
can help you with this... but often times the best way to find out the true
value of a house is to talk to a Realtor that you know... or an appraiser.
Heck, if you don't know one... call up a few today... tell them you have
a property that you're potentially going to sell in the near future... and ask
them what they think it should sell for.
Buy and Hold For Rental
So, you're going to buy and hold for rental? Great! You don't
need to worry about what it'll sell for right away. What you need to know is if
it'll pencil out on a month to month basis. You know... cash flow.
So, talk to a mortgage broker (or a private lender) and find out
what the monthly mortgage payment will be for that specific property.
Then find out what you can rent the place out for on a monthly
Then, you work backwards... 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 too 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're bringing into the deal in
cash... the lower your mortgage is.
Making an Offer
We've been talking about how to look at the numbers and analyze
a real estate deal.
From there, just make an offer. Many times the properties
we let you know 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 what is 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 to never over
pay 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 really look forward to working with you
in the near future.
If you have any questions at all... don't hesitate to contact
us anytime for anything.