We often communicate with investors looking to secure properties in the Tacoma, Atlanta, Tampa, Orlando, Seattle & Richmond areas. Interested individuals range from seasoned to new investors just starting their business.

We are in the business of locating prime real estate deals and connecting investors with those steeply discounted properties. Considering we work with investors and buyers of all levels, we figured it would be ideal to share valuable insights on a significant part of real estate investing: effectively evaluating the deal. Our process works with property deals in Tacoma, Atlanta, Tampa, Orlando, Seattle, Richmond, and all other locations across the United States.

Evaluating a real estate deal is a straightforward process. Regardless of your intentions, property investment and wholesaling properties are buy and hold; the first step is purchasing the property. And doing so at a great price.

Let’s get started.

How to Assess Single Family Home Real Estate Deals

There are a few fundamental aspects to consider when assessing a deal.

  • Cost of Repairs to establish its After Repair Value (ARV)
  • If you are purchasing a single Family Home to flip, or a fixer-upper, it is essential to evaluate the cost of repairing the home to return it to the market for sale. What will it be worth once fixed and back onto the current market?
  • Do you plan to repair and hold, converting it to a rental property?
  • You must determine the rental rate, and if there is an active loan on the home, your mortgage (also called debt service) payment. Understanding these numbers is critical to purchasing properties that will yield monthly cash flow.

Three additional things to consider are

Repair Related Costs

Before purchasing a property deal, research repair-related costs to bring the home up to market value. Repairs could include cosmetic maintenance such as paint and flooring, and it could also be a little more extensive such as a new roof, kitchen renovations, and landscaping.

Connecting with a general contractor who can advise you on costs and provide thorough estimates is critical to your deal. Schedule a property walk-through in your due diligence time and add the quoted price of repairs into your offer.

After Repair Market Value

The ARV is known to trip up investors. It is the price you could sell the property for on the market today. This refers to after the house has been repaired to a good condition. The best way to determine the ARV is to run a comparative analysis of similar homes in the area.

Note: Base your numbers on those of homes sold nearby in the past three months, not the listing price. These numbers will help determine the price that you can sell it for today. This number also helps regulate your purchase, helping you to avoid overpaying for a property you can’t earn a profit from in the upcoming three months.

How do you get the numbers? There are available services to help determine this information, but in most cases, chatting with a realtor you know can provide accurate insight. Or, if you know an appraiser, even better. If you don’t know either, pick up the phone and call a realtor or two and tell them you have a property you’d potentially like to sell in a few months, and ask them what they think it could sell for.

Buy And Hold For Rental

You’ve decided to buy a property and hold it for rent? Great move! No need to determine the ARV here, but you do need to know if it will produce a worthy cash flow monthly.

Contact a private lender to learn the monthly mortgage amount on that specific property.

From there, determine what the monthly rent can be for the property.

Now, work backward in determining the purchase price for the lowest possible mortgage to yield a cash flow as a rental property. Take into account other expenses, including taxes, maintenance, property management fees, and repair reserves.

So, here’s the recipe to a solid offer amount:

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

Simple, right?

The more cash you bring to the deal, the lower your mortgage.

Submitting An Offer

We have been focusing on the numbers and the steps to evaluate the deal effectively. The next step is making the offer. 

Generally considering the already far below retail value rates we offer, we garner multiple offers, usually above the asking price.

When considering a property you want, determine the maximum amount you can offer on the property to beat out competitors that are likely making offers.

Remember that the rule of thumb in real estate is never overpay for a property deal. For this reason, our deal evaluation process is so detailed, and the same reason investors (and buyers) connect with us for exceptional deals.

I hope this has been a great resource to better understand how to analyze real estate deals, and we look forward to partnering with you on prime real estate deals soon!

If you think of any questions, do not hesitate to contact us!

Happy investing!