How to Analyze a Good Real Estate Deal

A large part of being a successful wholesaler is the ability to analyze a great deal and pass on poor ones. Quite often, newbie wholesalers get excited, and grab the first “deal” they see. Instead, be patient. Think like a professional poker player. Usually, a pro poker player patiently waits for a great hand, then comes out pouncing!

It’s only a matter of time before you hit gold.

Most experienced investors will be loyal to you if you do your homework and learn how to properly analyze a profitable deal.

Below is a short-list of signs you should look for when analyzing good deals:

1.    Desperate sellers. Divorce, Death, Drugs, Chronic medical problems, and Job loss. These are the top 5 reasons for foreclosure. More than any other type of wholesaling opportunity, a desperate seller will make you the most money. On average, burnout landlords, heirs of inherited property and tax delinquent homeowners are not as desperate as homeowners in foreclosure.

Listen for comments such as: “how long will it take to close?”; “how soon can I get my money?”; “what’s the next step?”; “when can your buyer look at my property?”; “can you help me sell this place, I need to move fast?!”; “I need a major surgery and can no longer afford this place”; “I’m having major financial problems and i need money fast!”, etc.

The more desperate the seller, the less you can offer him. Most wholesalers in large metro areas offer between 50k-60k below market value. Property located in lower-priced areas, less.

A common mistake that newbie wholesalers make is to underestimate total costs the investor incurs when rehabbing a house. This is understandable since most wholesalers never flipped houses. So, here's a rule of thumb: if a hard-money loan is utilized, and the property is located in a large, metro area, total expenses will be about $100,000. Most flippers want to profit at least $40,000 profit. As a result, you need to know how much the investor can sell the property after he completes the rehab. This process is known as After Repair Value (ARV), which i discuss in another article.

For example, if the property is purchased for 500k, and the total expenses are 100k, and the investor wants 40k profit, you need to make sure there are three comparable properties that sold within the last six months, within a 1 mile radius of the subject property for a minimum of 640k. If so, this is a good deal.

For ethical reasons, don’t drastically lowball the seller. Besides, if you do that, he may cancel the deal and go with someone else.

Tip: never make an offer to a seller. Instead, ask him how much he wants for his house. Case in point: a while back, this lady called me and told me she had a property near USC that she needed to sell. She inherited the house. The property was worth $419,000. I asked her what’s the lowest price she will accept, and she told me she wanted at least $300,000. If I offered her $369,000, I would’ve lost out on an additional $69,000!

2.    Location. Remember, as an effective wholesaler, you must always be focused on the end product (the rehab project after completion) and the final buyer. Stay away from gang or drug infested neighborhoods. Why? because they usually take longer to sell. Flippers like property with a fast turnover because their holding costs are high. If there is graffiti on the walls, stay away. Drive by the neighborhood at night. Who’s out on the street?

Also, are there railroad tracks behind the backyard? If so, would you like to buy a house and be woken at 3am every night from the hoot hoot of the train? Are there unsightly utility towers or exposed water pipes? Look for any unsightly factors that may delay the resale of the property.

3.    Flexible seller. Perhaps the seller will carry the note (owner financing)? that would be very coveted by the investor. He won’t have to pay outrageous loan fees (about $20,000 for a hard money loan). Perhaps the seller is willing to rent the house for a reduced price during the rehab. Extra income for the investor.

Bottom line: when analyzing a deal, put yourself in the investor's shoes. Would you buy this investment property if you were the investor?

Joseph Hernandez is a real estate broker/trainer with Impac Realty. He specializes in locating under market property (avg. 30k below fair market value) and assigning contracts to investors. If you are interested, message me with your full contact info and criteria and he will add you to his buyers list. Also add him to your email contact list or his emails won't arrive in your inbox. [email protected] www.impacrealty.co