Analyzing A Deal (Newbie) - Posted by Brad

Posted by Ronald * Starr (in No CA) on July 03, 2003 at 20:05:49:

Maxx–(TN)----------

Happy to try to satisfy you with an answer.

Yes, your figures make this look like an excellent deal. It is puzzling to me that somebody else has not bought it. Even ignoring the commission aspect, this looks like a pretty good deal. And somebody else might not count their management time or might consider that part of their cash flow.

Well, when a property is on the market that long, it seems there must be a story behind it. Maybe a couple.

Were I in your situation, I’d try to talk to other agents in the area and ask if their investor clients have looked at it and why they didn’t buy it.

Maybe after tieing it up with a contract. When it has been on the market that long, I’s sure be inclined to offer about 12-15% below the asking price. When properties don’t sell, they are usually priced 10% or more over market value. Otherwise some other investor would have made an offer at something like 8-10% off the asking price, I’d think.

Good Investing******Ron Starr************

Analyzing A Deal (Newbie) - Posted by Brad

Posted by Brad on July 03, 2003 at 24:56:25:

I am looking at a duplex for sale and am wondering how I can figure out how much the house is worth or actually appraised at. Here is the details about the property:

list price: 75,000
all brick home, each unit has own car garage (attached), each have own basement, nice size yard.
One side is 2 bedroom, other is 3 bedroom.
probably can get about 600-650 per unit for rent.

The deal to me sounds pretty good.

I heard that the rent sould be 1% of the house value. So with this situation I should get 750/month total. But I can probably get about 1250/month total.

With this formula (that I heard about) the house would be worth around 125,000.

What do you think??

Thank you,
Brad

Re: Analyzing A Deal (Newbie) - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on July 03, 2003 at 08:53:36:

Brad------------

Nice to meet you.

Well yes, just going by the asking price and the presumed rents, that sounds like an excellent purchase.

You have two choices at this point, in my view:
1–tie it up with a purchase offer having a clause allowing you to pull out if you wish and then do your due diligence.
2–do your due diligence now and then moan over the fact that somebody else put in under contract while you were sorting things out.

You do not steal in slow motion.

Now, there is a lot more to it that this. You need to know how this deal compares to the typical deal in your area and to the better deals in your area. If this is not a “better deal” then you probably should not be buying it.

And as BrokerScott(MI) say you do need to know about the condition of the property and accurate rent estimates. Plus you have to get some accurate information or estimates of expenses.

But those can wait until you have a contract to purchase it. If you don’t have a contract to purchase it, why spend time figuring everything out?

Oh, if it has been for sale for more than a week, it might not be a good deal.

Good Investing***Ron Starr

Re: Analyzing A Deal (Newbie) - Posted by BrokerScott (Mich)

Posted by BrokerScott (Mich) on July 03, 2003 at 05:25:31:

Doesn’t sound too bad on the face of it. 1st, plan on having it inspected for soundness of mechanicals. 2. Confirm your assumptions about rents. 3. Check the cap rate. (Lots of posts about this subject-check archives) Best, Scott

Ron Quick Qn for You: Analyzing A Deal - Posted by Maxx(TX)

Posted by Maxx(TX) on July 03, 2003 at 12:13:09:

Ron,

“Oh, if it has been for sale for more than a week, it might not be a good deal.”

Here’s my question (not trying to challenge you, but trying to find answers within myself):

My numbers came up to be about same like Brad.
Full Duplex $75K
Newly rehabbed
Long-term lease in place for $1100 both sides.
Problem: On market for 310days.
Seller is Listing Agent.
Tax Accessed Value $50K

Maybe the seller is asking too much. But here’s my questions:

If I can get a loan on it, the appraisal is worth what it’s asking for,
Price $75,000
Gross Annual Rents $13,200
5% Vacancy Rate $660
Gross Operating Income $12,540

Insurance $1,000
5% Management Fee $660 (my own time/ management)
Taxes $1,200
10% Repairs $1,320
Total Operating and Fixed Expenses $4,180

NOI $8,360 = $697/mth

Mortgage = $525/mth with 5% down (7.5% 30yrs ie assume $75K loan with closing rolled into it)

Cash Flow $172/mth

As I’m a realtor, I get back 3% as buyer’s commision, therefore I pay only 2% ie $1500

ROI = ($172 x 12mths)/$1500 = 137.5%

Does that sound right?

My question is: What constitute a good deal? A good deal seems good for me may not be a good deal for another.

How do you feel about this?