How To Evaluate A Real Estate Investment Deal

How To Evaluate A Real Estate Investment Deal


Alright, what’s going on everybody. So, in today’s video I’m going to show you
exactly how to evaluate deals in under 10 minutes. This is a lead I just got. So, I’ll show you the exact three step system
that I use for evaluating any type of real estate investment deal. So, the very first thing I do, and I’ll just
show you my three step formula so, Zillow, and then I use what’s called the MAO formula,
which I’ll talk about, and then also the Deal Analyzer. So, that being said, here’s the lead I got,
and the thing about these, I go in under the assumption that most of these leads are not
going to be very good, which is fine, because I’ll get about 20 of these, maybe per week
and all I really need is one or two to actually be good leads to do very well. So, don’t be discouraged if you get bad leads,
it’s just part of the business. You want to get maybe 25 or 30 at least per
month to find the one or two really good deals. So, this looks like it’s from a wholesaler,
and they actually put together a little presentation, you’ve got the pictures. It’s a two level house, Maryland, here’s the
phone information. Put a little information on it, four bedroom,
two bath. So, the first thing I like to do with any
type of lead I get is I’ll put the address into Zillow, just to get a good idea of what
they’re looking for versus what the Zillow value is, because usually you want to see
a big difference. For example, the last three or four houses
that I purchased, I purchased them for about half of the Zillow value. So, you really want to see a big difference,
and that’s, it’s not the … It’s Zillow, so it’s more of an estimate, but as a general
rule of thumb most of the properties I buy are significantly under the Zillow value so,
keep that in mind. So, let’s put this in here. 6723 Hillmeade Rd. in Bowie. Okay so, here’s the property, and I think
this one is actually listed on the market. Sometimes wholesalers, what they’ll do, they’ll
actually send over properties that are listed, which is fine. I mean, chances are it’s not going to be a
great deal if it’s listed on the market and there’s 5,000 other people that have seen
it, but I’ll still take a look at it. So, it gets listed for sale for 250. This estimate is 253 as you can see right
there. So, that’s usually a good indication, you
know general indication of value. So, let’s see what they’re asking for the
property. So, purchase price, 265. So already, it’s probably not a good deal. They want a good amount over the Zillow value. So, probably not a good deal, but like I said,
we’re going to take it just through my three step Zillow deal. So, for Zillow, it’s probably not a good deal. The next thing is the MAO Formula. Maximum allowable offer. So, that’s where you take the ARV, you multiply
that times point seven and then you subtract for the cost of repairs. So, they said the repair estimate is $50,000,
and it’s a two level house. So, two level houses typically don’t need
that much work. So, it needs a new kitchen, floors actually
look pretty good, new paint, probably new water heater and new HVAC needed. So yeah, two level house, it’s not the biggest
house in the world. $50,000 is actually probably pretty accurate. So, with the MAO Formula that’s going to be
ARV, which is after renovated value times, multiplied times, point seven, and then minus
the cost of repairs. So, we’ll put 50k for cost of repairs for
this one. So, let’s see. Let’s take it through the MAO Formula, and
I’m going to run my own comps, but this person is saying that the comps, they said the comps
are 378, and then it’s interesting because if you’re going to say the comps are 378,
you shouldn’t send over comps that are like 300, 315. I guess there’s one that sold for 412. So, I’m a little skeptical of this deal, which
is totally fine, and I get deals like this all the time, but let’s take their ARV of
378. It’s probably not anywhere near that, but
let’s just use that for an example. So, if we take the after renovated value,
let’s say it’s 378 like they said. We’ll just do 375. Okay so, 375, I’m going to bring out my calculator
here, because can’t do this math in my head. 375 times point seven, that equals 262, and
then we subtract 50 from it. That brings you down to equals 212,500. That would be the most I could offer on this
property, assuming that these numbers are correct and this number might even be high
to be honest. I think their repair estimate’s pretty accurate. So, 212. They’re asking 265 so, obviously we’re quite
a ways away. But, just for the point of this video, let
me just do a quick search on the comps. I’m going to go back, this is my MLS system. So, I’m going to go back a year. Only going to look at single family houses,
pending, because sometimes people are wrong with the comps both ways. Usually wholesalers and real estate agents
might exaggerate the comps a bit, but sometimes they actually under exaggerate them. Just pulling up the comps here. So, 6723 Hillmeade Rd. in Bowie Maryland. I’ve actually done deals in Bowie before,
it’s a nice, you know, I would do deals there again. So, pull this up. Since Bowie hasn’t been a ton of sales, so
I’m going to do a pretty wide radius. I’m going to do about a half mile so I can
pull in, a little bit more than a half mile so, I can pull in all the properties, and
this looks like it’s on a busier road. So, another thing I like to do is just pull
up the property on Google, just so you can get an idea of the street, things like that. So, if it’s on a busier road, you know I want
to try to find comps that are also on this busier road as well. Okay so, here’s the house, looks like a little
parking pad there, which is nice. So, it’s on a double yellow line road. I mean obviously it doesn’t look like the
busiest road in the world, but it’s not just some back road either. Okay so, let me pull some comps here. This neighborhood, I think there’s a lot of,
not newer construction, but newish construction, maybe the last 10, 20 years. So, we need to make sure we’re finding property,
like two level houses that are of similar square footage. I like to sort by price first, and this property,
I believe is listed so, we’ll actually see it listed here. I think it’s listed pretty low. Yeah, here we go. It’s listed at 215, which is actually … My assumption is they probably have it over
215, but actually I would probably purchase it, assuming their after renovated value number’s
correct, which it probably isn’t. Okay so, now I’m just pulling up the comps
just to get an idea of if their 375 number’s actually correct. So, here’s a property. So, we want to look for other two level houses. I’m just going to make a, kind of like, click
on all the ones. Because, if we go all the way up, there’s
probably comps that sold for like 600, yeah 650, but that’s, you know that’s like a three
level house, 4,000 square feet. 500, see that those houses are just not similar. So, we’re going to keep going, keep going
until we find ones. So, that looks kind of similar, so does that. That’s too big. So yeah, there’s a lot of properties here. So, I’m going to narrow this list down, and
we’ll really narrow in on the exact number. So, when looking at comps we want to try to
find comps of similar bedrooms, bathrooms, similar square footage, obviously. This one’s six beds, four baths. I think it’s just too big. The comp that we’re looking at is 1,800 square
feet. So, obviously that’s too big. You want to try to be within 200 or 300 square
feet if you can. This one’s six beds, four baths. It’s just, these are just newer, 2001. I think the property we’re looking at was
probably built in like the 50s or 60s. So, this is a little bit closer in square
footage. I think this one has a basement though, so
we’re going to keep going down, down, down. So, here’s more of the comps that we’re going
to be looking at. So, like this one for example. This looks like a pretty similar house, 345. So, this one’s pretty fixed up. Let’s see. Yeah so, this one’s kind of renovated. Yeah, this one looks like it’s probably an
investor. So, this one, 350 and then there’s ones, you
know there’s one’s that are pretty lower than 350. So, you know, if I were to run a quicker,
a better search of comps, I’d probably find that the comps are closer to maybe 300, or
maybe 325, but I think 375 would be stretching it. So yeah, so 375, if it was 375 I’d buy it
at that price, but chances are it’s the after renovated value’s probably like 315, in that
range. So, it would have to be much lower than that,
but let’s just take it through the deal analyzer as well, just to wrap this up. So, if you want to copy my deal analyzer,
just email me and I’ll shoot you a copy. There’s also one available on my web site
so, I’ll put a link to that. So, this is my cool little deal analyzer. So, let’s say the after renovated, let’s just
be, let’s use their number, 375, let’s say repairs cost 50,000. This is what my hard money lender charges. So, each hard money lender’s different, but
it’s going to be roughly the same. Let’s see. Okay, purchase price, let’s say I bought it
at 215. That would probably be a decent deal. So, if I bought it at 215 and I needed 50,000,
and it sold at 375, I’d make 50,000. So, that’d be a pretty decent deal. That’d be a nice bonus money there, and you
want to try, with net profit, you want to try to be at least 10%. Now, if it was a very simple condo project
or something like that, maybe you can be a little bit less than that, but you usually
want to be a minimum of 10%. So, that’s how I do it, that’s my three step
deal evaluation. I look at Zillow first, then I use the MAO
Formula, then I use the Deal Analyzer, and you just want to put a lot of deals, you want
to put a lot of leads through this process and if you get 20 or even 50 leads, you’re
going to get a deal. Most deals are bad, but one in 10, two in
10 are actually going to be pretty good. So, keep that in mind and thanks for watching. Be sure to subscribe. Be sure to like, share, and I will see you
in the next one. Alright, bye.

6 thoughts on “How To Evaluate A Real Estate Investment Deal

  1. ►►► Get 21 Ways To Find Off Market Real Estate NOW: http://amzn.to/2pu06oO

  2. Why did the wholesaler say the purchase price was $265k when it was listed on the MLS for much less??

  3. Awesome breakdown! I'm interested in getting your deal analyzer. I didn't see your website in the or email in your note section…thanks

  4. Nice Video!  Looking Forward To More Content. Video Liked 🙂

  5. good content nice video.

  6. could you send me the deal analyzer? [email protected] Thanks!

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