Evaluate your Real Estate Deals correctly BEFORE you Buy
Wholesaling, Retailing, Landlording. Each of these Real Estate business specialties is different. However, there are some skills that apply to all three. Foremost and an absolute key to success is evaluating the real estate property and the deal. No matter what your primary real estate strategy is, you must answer these four questions correctly:
- How much will the property be worth?
- What repairs does the property need?
- How much will the repairs cost?
- How much should I pay for the property?
Evaluating each question and getting the right answers will help you succeed in your real estate investing.
First, determine your After Repaired Value (ARV). Getting accurate recent sales is critical. You MUST accurately assess the end value of your target property. Many investors think they know the value range for real estate in their target neighborhoods. However, the values do change. Checking recent sales gives you an accurate ARV of your target property now.
Second, evaluate the extent of repairs needed. Your final exit strategy will influence the type and quality of repairs you perform. A house inspection can give you the details you need and identify items you may have missed. The more evaluations you do, the better you will get. Having a solid list of what to do and not to do is critical to the next step.
Third, determine your repair budget. Again, practice and experience helps. Having contractors you can call for questions and bids will help you refine this to a final number. Do NOT underestimate here.
Fourth, taking all the numbers from steps 1-3, determine your Maximum Allowable Offer (MAO). Once you have this final number, do NOT pay more. If you get new information that changes previous numbers you can update it. But, do not fudge the numbers because you fall in love with the house, or you’re anxious to get a real estate deal done. Fudging the numbers rarely ends well.
Initially, you will evaluate a lot of properties to find a good deal. As you gain experience, you will get much faster at all four of these steps. Getting out and practicing will rapidly increase your confidence, and improve your skills. The best way to get experience is through practice and more practice. Accompany experienced people. Take bus tours. Talk to contractors. Talk to other investors.
Accurately evaluating your properties can truly make or break your Real Estate business. Get good at it.