Step One: The 5 Minute Analysis
A lot of people struggle with math. It’s understandable because, although it isn’t terribly difficult, it can be overwhelming to get going. So, I had the idea that it would be neat to show the BiggerPockets community how I analyze an investment property in under five minutes. This isn’t the real in-depth analysis (which we’ll get to) but simply the first “filter” to decide if the property is worth pursuing.
I sat down at my computer and pulled up Realtor.com and picked a property pretty much at random to analyze. I made a quick video (it actually ended up being slightly longer than 5 minutes, but close enough!) and I looked at some of the important aspects of this property. Specifically, I looked at:
- The location – the property is located in the town I do most of my investing in or around. I knew the location fairly well, because I own another property on the same street. I’d probably classify this as a “C+” area, maybe “B-” with mostly rentals. The property was listed at $120, 000, but had originally been listed at $140, 000.
- The number of units– Four units total – three 1 bedroom and one 2 bedroom.
- The rent it brings in– The listing stated a total monthly income of $1740 per month, and because I know the area well, I knew a typical one bedroom would rent for (at minimum) $400 in my area and a typical two bedroom would rent for about $500, bringing the total monthly conservative income to $1700.
- The expenses based on the 50% rule– 50% of the income left $850 to pay the mortgage.
- The cash-flow, based on the 50% rule– I looked at the total mortgage amount for a $100, 000 loan (buying at $120k and putting roughly $20, 000 down).
- The seller
– I determined that this property was a bank repo, that had originally sold for $149, 777 but the bank had foreclosed on it and was selling it at a steep discount.
If you wanna watch the video, you can check it out here:
The purpose of this 5 minute process is not to nail down the specifics on a property. I don’t drive out and look at it yet, I don’t make a lot of phone calls or even show my wife yet. I do this same process dozens of times every week, mostly in my head in under a minute. There are two prices to note about the properties I examine:
- The List Price: For 99% of properties I find on the MLS, the price is far too high and not worth it.
- The Ideal Price: For 99% of properties I find on the MLS – there IS a price that would make it worth it, and I like to find out what it is. That’s the point of the video above.
Some investors choose to offer the #2 price on every property they see, and while I don’t think this is necessarily a bad idea, I’d rather not waste the time on properties that I’m not a fan of. My personal strategy is to buy a few, amazing properties per year, rather than dozens or hundreds. I like the simplicity, and I’m not looking to be Donald Trump. However, when I find a property that excites me, and the listed value is somewhat in the ballpark of the ideal price, I will investigate a little closer.
Summary of the Quick Analysis
By the end of the video, I stated that “At $100, 000 – this property starts getting very interesting to me.” Why? Because I like to see a MINIMUM of $100 per unit, per month on a property with nothing down using the 50% rule. If I’m putting down a large downpayment, I want to see $200 per month in income. At $100, 000 with nothing down, the projected cash-flow would be right around $300, and purchasing it at $100, 000 with 20% the cashflow would be around $200 per month. That would be an okay deal. However – if you know me – I don’t want an okay deal. I want a great deal. Don’t you?
Let me show you how this turned from okay to great…
Step Two: The Closer Look
After publishing the video on BiggerPockets, I kinda forgot about the property. I’m not exactly sure why, but I figured I’d take a look later and just kinda dropped it. A couple weeks later I was driving near the property and remembered it, so I took a drive by. (Silly, yes, I know!) I called my real estate agent and asked him to meet me over there to look at it. Because three of the units were currently rented, we could only get in the fourth unit to check it out without giving 24 hour notice (which I don’t like to do unless I’m really really interested.) I was surprised by the overall cleanliness of the unit, though while the unit we were in was listed as the “two bedroom” unit – it was functionally only a one bedroom (one of the bedrooms was really more of a walk-in closet.) However – at this point the deal got a little better for me because I realized the units were not as ugly on the inside as they were on the outside. I could easily expect $450 per month in rent from these units, not the $400 previously thought.
The Game Changer
While looking at this property, my Agent told me something else exciting about it: this property was not a 4-plex, but actually a 5-plex. The bank had “decommissioned” the 5th unit in order to make the sale easier (4-plexes are MUCH easier to finance than 5-plexes, because a 4-unit is considered “residential” in the loan world where 5 units and up are considered “Commercial” and require a whole different set of standards and a much different approval process.) We walked to the third floor and I was shocked at what I found – a large, 3 bedroom apartment that was in decent shape. The sellers had locked all the bedroom doors and called them “storage” for the other four units.
The numbers I had run before were based on 4 units and $1700 per month in income. Now, it seems, the potential for income was MUCH higher. This was the catalyst to turn this 4-plex from a good deal to a great deal.what does an electrician's helper male How to deep sleep tips? What do servers claim for tips? What does obstinate mean? Makeup tips how to cover deep scars? What is hypoglycemia? How to calculate acceleration? how to install quest helper wow 2.4.3 How to make falafel? Tips on how to successfully implelemtn creative curriculum? What tricks for taxes and first time home buyer? What are the holes on the ends of russian ball tips for? What is the scientific meaning of work? How to get better sleep? How to zest an orange? What is the meaning of saf? What does culpable mean? Staking when maxed tips 2007? How to calculate capital gains tax? What is the meaning of the movie nocturnal animals? How to sign out of netflix? Does it matter when tips are paid? What are brush tips made of? What tips or tricks do you have for your profession? What are the backrooms? how to fix panda helper unable to install What is the average pay for servers in tips at cracker barrel in lawton ok? How long to bake a potato at 400? What time does david buster close? What does infertility mean? What is the meaning of ciao bella? How to bake pork chops? How to peel eggs easily? What is the literal meaning of the word antibiotic? What does 4x2 mean on a truck? What time does the super bowl end 2022? What does eso mean in spanish? How to start skate tricks? What does it mean if the tips of your toes are frozen? How to restart roku? Tips for how to succeed in math placement test? How to fast to lose weight? He who laughs first laughs last meaning? What does mademoiselle mean? What does dreaming about being pregnant mean? Psychology of gamesmanship - how to manage mind games and tricks by allan p. sand? What is the meaning behind the movie master? What is the meaning of aluminum? What is a homophone? How to cancel weight watchers? What does lan berriaren bila nabil meaning in basque? What does twitterpated mean? what is a handy helper Why are the tips of my nipples white and sore? How to get an llc? What does hpv look like? How to get dog to stop barking? What does fat do for your body? How to train a yorkie puppy to do tricks? how to turn off text helper off samsung j3 What does sonder mean? How to do cloth changing magic tricks? what was mothers little helper pill How to teach a turtle tricks? What are reserves? How to lighten dark armpits? How to cancel roku subscription? How to overcome codependency? What are the nato countries? How to make steak tips in the oven? How to hit a draw? What do carats in diamonds mean? What does af mean? how to disable battle.net helper Tips on how to take good pictures? What is the meaning of self attested? What does uwu mean bad meaning? How many days to quarantine? How to bet spread tips? how to remove internet helper 3 toolbar What is the meaning of christmas bells? Which phrase in the excerpt clarifies the meaning of “atrociously” by providing its opposite? What does nc mean? How to decorate cupcakes using russian tips? What does library binding mean? How to do cool gymnastics tricks at home? What is the meaning of a jerk? How much do hooters servers make in tips? wiiu usb helper tool hikari 06 how to install How you do magic tricks? how to become a pipeline welders helper What time does my mail get delivered? Why q tips bad for environment? How long does it take to get to the moon? Tips to get deal when eating out? How to make icing tips? How to play spider solitaire? What does my last name mean? How to obtain a cpn number? What does totaled car mean? What is the meaning of mn? How to increase water pressure in house?
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