Being able to recognize a good deal is crucial to the success of a in real estate investing business. While you may come across so many properties for sale, not all of them qualify as profitable real estate investments.
So how do you tell which deals to pursue and which ones to trash?
You must follow a simple business model to be a successful real estate investor. It is necessary to develop ball-park figures that help you analyze deals whether you wholesale properties, do lease options, fix and flip, keep as rentals, etc.
The following 3 steps apply when analyzing your deals:
1) Pre-screen your sellers
You must pre-screen all your motivated sellers to gather all the information necessary to analyze your deals. It is important that you invest in a real estate investor website that helps you pre-educate motivated sellers, pre-screen them and pre-negotiate with them.
The information you receive through your website is enough to know if you have a deal or not.
If you still have to pre-screen motivated sellers over the phone, then you must have a script with simple questions that provide all the numbers you need to make a quick calculation.
2) Run comparable sales
You then need to determine how much the house would cost TODAY if it was sold in perfect condition.
3) Analyze your offer
Armed with this information, you can then determine if you have a deal or not. Of course, the mortgage balance and the asking price are the main determining factors when making this determination.
a) Wholesale deals
If the house costs 70 cents on the dollar minus repairs or lower, it probably qualifies as a wholesale deal. You should aim for 65% minus repairs in a poor real estate market.
You must also calculate your profit in this calculation. So if you want to make $5000, your buying price would be 65% minus repairs minus $5000.
You have to remember that the lower your buying price, the lower you can flip it and the faster you can sell it.
b) Rentals and lease options
If the house needs no repairs and does not qualify as a wholesale deal, then it probably qualifies as a good deal for rentals and lease options.
You therefore need to know the rental rates in the area. Obviously, the monthly mortgage payment must lower than the rental rates for this to be a viable deal. For example if the mortgage payment is $1150 and the rental rate is $1500, you have at least $350 monthly cash flow.
It is a good idea to use the rental rates for lease options, though you can fetch a higher monthly payment with a lease option.
It is always important to have equity in the deal for this to work.
c) Short sales
A short sale is viable if none of the options above cannot work and the mortgage payments are late.
You can get better results with properties with more than one mortgage.
We have covered short sales in separate articles.