Being able to quickly and accurately evaluate real estate deals is one of the most important skills you can acquire as a real estate investor. Even with a great marketing plan in place and when generating a ton of leads, if you can’t differentiate a deal from a dud, you will find yourself spending too much time trying to make chicken salad out of you-know-what. Your InvestorComps account gives you access to not only the data you need to evaluate your deals but the training also.
Lets explore five necessities for
Step One: Determine Motivation
The first necessity is the seller’s motivation for selling their property. This is readily obtainable by asking a simple, concise question, “Mr. or Mrs. Seller, is there a particular reason why you are interested in selling at this time?” You will find most motivated sellers will readily divulge this information, and those who question why you need this information typically have no motivation to sell. The answer to this question will not make or break a deal but, the answer is a great starting point in separating the deals from the duds. If the seller responds by saying, “I’m just trying to see if I can get my price…there is probably little motivation to sell and it is unlikely to result in a workable deal. On the other hand, if the seller responds by saying, “The property needs a lot of work and has been vacant for a while”, you may have a lead that justifies spending more time and paying closer attention.
Step Two: What is the Least the Seller Is Willing to Take for the Property
The next important piece of information you need from the seller is how much they are currently asking for the property. This is one of the most important questions you need to ask during your initial phone conversation. This will help determine whether or not the property is worth looking at and give you a starting point in the negotiations. Depending on how well you know the neighborhood you can sometimes determine the likelihood of a deal from the answer to this question alone. Occasionally you will have a seller who openly says “I am just looking to get out of debt.” This response doesn’t necessarily mean the deal is a slam dunk, as he or she may owe more than the property is worth, however, a response of this type always corresponds with some level of motivation. We will need more information to further classify the lead as a deal or a dud but seeing such motivating factors is a step in the right direction.
Step Three: Determine What the Seller Owes
The next important information about the property and
Step Four: Estimate the Repair Costs
Step Five: Determining the After Repair Value and the As-Is Value
The final two pieces of initial information you need to properly classify the deal as worthwhile or not are the ‘As-Is’ and ‘After Repair’ values. To do this utilize your InvestorComps account to pull the comps and property data. You want to locate comps that are geographically close to the property (1/2 mile or less), and similar in size and style to your subject property. This will help you determine the After Repair Value or what the property is worth when you are done fixing the property. These comparables will also help you determine the As-Is value of the property or what the property is worth as it sits right now. At this point being aware of market values and the selling price of properties in the neighborhood in question becomes the most important piece of the puzzle. As you know, I believe you make your profit when you buy, so you must do your due diligence.
To Your Success,
Mark Jackson (MJ)