How to Analyze real Estate Deal

Hey guys what’s up? I get ask this question alot on how i analyze real estate deal especially in a high interest rate envrioment. I just want to document my thought process here to show you what i look for and how i think

If all the due dillinenge check out. I migh go through with it and close the deal. But here Is how it work

1. Find the deal

I got this deal by simply looking at the MLS. There are still deal in the MLS and you just have to look. This is a 130k Home 2 bedroom 1 bath that need lots of repair with the infastructure ready to add another bed room and bathroom

We understand that building wealth require owning property, land,and businesses. We can’t just flip for broker deal for other people forever and expect to be wealthy. So Jenny and eye always keep an eye out for property that we can keep.

2. Question to Asks – HOW DO YOU EXIT?

Perhaps the biggest question to ask is that how you will EXIT the property before evening buying it. I love deal that have multiple exit strategy. If Plan A does not work I can go for Plan B, plan C and so on. Because there is A LOT OF RISK In Real Estate. You have to be able to identify the risk and migitate them with multiple exit strategy.

This particular deal there is a section 8 tenant paying $1200 a month already. So Plan A is just to keep it the same and ride it out.

However, After checking the short term rental comps and the regulation on this unit. This is a legal area for Airbnb and the comps is $40,000 Gross, or $3,400 a month. That is significantly Higher than the income from Section 8.

What happen if the City all the sudden ban short term rental or put some crazy restriction into it? You can always sell the property at the ARV, which is $265,000

Determine ARV Is curcial to your deal. Watch this video here. this is where your license come in handy. Either become a real estate agent, or work with one

There is also alot of new built in the area. Another exit strategy would also be to tear down the home and build two skinny house and sell each for $290,000

Although we are good at flipping property. Jenny and I understand that wealth require owning property and land. We always ask ourselves this question: Given our investment objective, and the deal on the table, what is the highest and best use for this home?

We can’t just flip them forever and expect to build anything. So we are opting for option B, which is to improve the property, force appriciation, and Cash Flowing it through Short Term Rental.

3. How Much do you want to pay youself?

This is the probably the 2nd most important question. Is how much do you want to pay yourself? There is two way you will get pay in real estate: Equity and Cash Flow

In This deal Assuming NOTHING went wrong, which is rare, I will get pay $77,300 in Equity. I can access this equity tax free when i refinance the property. This fall into the 70% Rule that alot of investor are using.

Then we calculated the Cash on Cash Return. Assuming we buy the property cash and no leverage what is the return we will get?

We plugged it in to our excel spreadsheet, which is simply the income and expense of running an airbnb fee. We get the net cash flow divided by the total all in money, we have 10.85%

My Standard is double digit return for any real estate investment, so this worked out.

Or, we all learn the art of leverage. What would be the return if we leverage the property at $187,700 – Not event at 265,000 and use a DSCR Loan at 7.3%

That is a whopping 18% Return on your money not including appriciation and tax benefit. Any investor would jump out of bed to work for that kind of return.

4. How do you actually pay for for the property

Where is the MONEY? You need money to buy real estate. It can be someone else money, but you need Money.

For this property I can either self-funded the deal, or continue to leverage. Currently I decided to give a hard money lender a try since they will help me out in the refinancing process later as well. Here is the quote that I get

I might end up borrowing more or less than the Loan amount but you get the Idea. Hard money lender love working with investor that has experience.

So make sure you brag about your experience and past deal to get the best down payment at interest rate. For this deal. They Quote me 10% and 10.15% pear year and the fee is $999 + $2250 origination point. So my total cost to use this money is around $8108.30 (971.86×5 + 999 +2250). My 10% down payment l is $16,664.51 for a total of $24,772.81.

again. given NOTHING will go wrong, it will create $77,300 in equity. that 312% Return on Equity.

Who wouldn’t want that kind of return?

I ran all the numbers and all the green like turned on. So we went look at the property. confirm the Rehab number. It’s a good idea to bring your GC with you. If you messed up on the rehab it will kill the deal.

I know i bring mine to look at every deal.

Conclusion

That’s it folk. The rest is about execution. There is a million things that could go wrong in the deal. especially during the rehab. Old house like this, you never know that you will step into until you open this Up.

The Fed might go nut and raise interest rate, then you will be really F* So it’s really important to finish the project on a timmerly manner.

The City might outlaw short term rental then you have to move to plan B. It’s important to work with a mentor that been there done that, to guide you through this step.

That’s the value of the Cash Flow Agent Network. Join the network, become a Cash Flow Agent and you will have access to experfience real estate agent and investor that do this for a living.

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