Phase Four
Real Estate Investor
Properly Analyzing Properties

To be a successful real estate investor, you MUST properly analyze investment property. Get that wrong and you will continually pay too much for property.

New real estate investors are always anxious to buy their first property. Even though this is a very short course, many feel like it is long, because they are eager to get started. I understand this feeling...I went through the same thing.

I also paid too much for my first eleven properties and struggled greatly, until I began to buy right. In fact, that very first correct purchase is what lead to that moment of reflection, on the couch, I spoke about in Better Investing.

Do not make the same mistake. Merely buying a property does not make you a successful real estate investor.

Consistently buying right does.

Buying right is all that matters. Any real estate investment course worth anything will teach you this.

1st - Going through that exercise with your Sunday Newspaper is crucial. The most important figure to know when analyzing property is "Full Retail Value." In other words, what is the going price for a particular type of property in a given area. The real estate section in your newspaper is full of full priced listings.

2nd- Take the properties advertised as being discounted in some way and plug them into your siteX account. If there is not much activity or values are hard to find, SiteX will state this. If that happens, look at the comparable sales...That will give you enough sales, to comfortably estimate top value and compare to what's advertised in the newspaper.

Regardless, compare either the siteX estimated value and/or comparable sales to what is listed in the newspaper. The newspaper will also get you familiar with the different areas and how the values change from one part of town to another. They list properties by area.

You can also use Realtytrac to find estimated values if you know the square footages and zipcodes. If you have a big list of properties, Realtytrac may be faster since you will only enter these two values. The values will be broader, but that is just fine for this stage. Later you will need more accurate values.

Once you've done this, you will know full retail value of several areas.

3rd - Divide your preliminary list into areas. Multiply the full retail value of a particular type of property by 0.6. This will give you 60% of full retail value. This will be different for different size homes. For example a 2 bedroom home value should be different than a 4 bedroom home, in a given area.

I know this is tedious but you must know value if you intend to be a successful real estate investor.

4th - Subtract an estimated rehab amount from that 60% figure. This will be a pure guess, unless you have visited the property. I generally use $15,000, unless there is some detail which clearly implies more or less. Sometimes the seller will give a rehab estimate. Call them an find out.

Also subtract estimated closing costs. You will get this figure from your Private or Hard Money lender.

Note these estimated figures for each property type, in the various areas.

5th - What an awesome real estate investor! Some of you will have hundreds of properties on your list. With numbers from above, you can now EASILY locate your top prospects and disregard the rest.

Simply take the top 5 properties, closest to the Step 4 numbers. Only 5.

Usually all 5 properties will be above the figures from step 4. That's fine. No matter how far away the numbers, you are only going to offer according to our parameters. Period. If someone else wants to overpay, let that be their problem.

As a true real estate investor, you are only interested in true bargains. Never feel you must buy a property. Always stay objective and let the numbers tell you what to do.

However, if you ever get properties which are at or below the figures in step 4, move on these properties very, very, very quickly. Depending on the actual rehab costs, you may have uncovered a rare gem.

That's it! you can now confidently sift through properties and quickly narrow it down to 5 prospects.

Over time, you will see a pattern. Most of the best deals will come from the same places...usually a couple of wholesalers.

This method will allow beginners in TVREI to confidently and consistently secure properties within an acceptable price range.

But you will also notice quite a few of the properties you eliminated were actually sold for less than your 5 winners. That's because this method does not negotiate with the sellers or physically inspect each property...You do not have the time, nor the expertise at this time. Later, when you have more time, you will be able to do this.

For now, you want to be sure to buy right with a fast and effective process. Most get too bogged down in the beginning. This leads to frustration and information overload...many never get started. As you become more familiar with the areas, you will improve your profitability on each deal.

The wholesalers have the time, the connections and expertise to do this. This is why most of your good deals will come from them....but not always.

So continue this entire process for some time. The ones which do slip through the cracks are super duper deals and this happens frequently. As mentioned before, the wholesalers do not get everything.


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