Property Search Criteria
Posted by Amanda Busby on 25 January 2012 02:22 PM
When you are looking at a house, whether its online or in person, there are only two or three questions you have to know the answer to before you know if it’s a deal, a steal, or a “get real and run away” opportunity.
You have to know the answers to these questions before you dare make an offer.
1. After Repair Value: It doesn’t matter what the current value of the house is or what it would appraise for in its current condition. We don’t care. The value that we care about is the after repair value of the property in question. Sometimes you will see this as ARV. Whether or not you have a potential deal depends upon the value of the property after the necessary repairs. There is a reason that people look for handy-man’s specials and fixer uppers. There are savings to be had. We utilize the savings to make sure that our deal really is a deal.
2. Amount of Repairs: What is it going to cost to get this property to appraise at the ARV? Its important that this is accurate and includes all necessary repairs. I have great luck telling realtors or owners that I need “just a ballpark figure”. Of course the number isn’t written in stone. It really is just a ballpark figure. But it’s the second number that you must have to utilize my easy property analysis.
3. Potential Rent: This is the optional question. It doesn’t matter if you don’t intend to keep the property for any length of time. But even if you plan to sell the property, its not bad information to have for your own sales pitch. If the property is For Sale By Owner you will also need to know what their loan balance is and how far if at all they are behind on their payments. Remember these are the people who are really keen to have you purchase their properties. They have a pain level associated with their property ownership. A good way to address this question is to ask, “How far behind are you on your payments?” It gives the owner permission to tell you how serious things are AND it let’s them know that you assume that is the case. So they aren’t embarrassed to discuss this with you. Don’t worry if this seems tricky. In my course there is a whole section on scripts for realtors and owners to help you get through these questions without stumbling. You will also learn how to make low offers without getting laughed at or hung up on. You will be amazed at how many really great deals you can generate following my steps.
Now let’s look at my simple approach to property analysis. You don’t want to waste time on properties that are “get real and run away” when you could be focusing your time on deals and steals.
In my market, I primarily wholesale my properties on to investors. That means I need to be able to resell the property for about 70% of its ARV after purchase, closing costs, and repairs. Its safe to say that 60-65% of ARV is all I can afford to pay on a deal and have it still be a deal. So I need a quick and easy way to analyze the property and see if I can stay within my numbers. Of course the numbers are a little bit different if I am buying to rent or buying to retail. But you get the general idea.
I highly suggest you work with worst case scenario numbers. That means if the customer says a house is with $70,000 to $75,000 you look at an ARV of $70,000. If they further ballpark the repairs to be $5,000 to $10,000 I always go with the $10,000. If I plan to wholesale the house, I also have to allow for closing costs. So that leaves me with a number like this.
Property ARV $70,000
This leaves you with $54,700 in value. So let’s assume you can get the deal for $44,000. Then you have a $10,000 deal on your hands and you are off to the races!
This property analysis is so simple, it enables you to do deals super fast without breaking out your calculator and spreadsheet. And the faster you can do deals, the more money you can make!