How to Quickly Evaluate Potential Deals
As a real estate investor, being able to quickly evaluate potential real estate deals (fast!) is one of the most important skills you can develop.
I’m talking about the “5 Basic Essentials” that you must know … so you can quickly determine if you’re dealing with a real potential ‘deal’ or a flat-out ‘dud’.
A more in-depth analysis to confirm your initial figures and assumptions only happens AFTER you’ve determined you’re dealing with a real deal.
Plus, getting good at this will really allow you to ramp up your marketing and lead generation activities!
Here are the “5 Basic Essentials”:
#1: Determine Motivation Level
In order to get a good price or good terms, you need a seller with a motivation level of 7 or above (on a scale of 1 -10).
That’s why the most important questions you can ask is “Why are you selling?”
You want a very specific answer to that question. Something like … a job transfer, loss of job, behind on payments, reduced hours at work, getting a divorce, can’t afford the payments, loan payment went up, requires a lot of fixing, health reasons, etc.
The greater their motivation to sell … the greater the potential of you getting a good deal.
#2: Determine Lowest Amount Seller is Willing to Take
Two simple questions will help determine this …
“How much are you asking?”
Then, after they answer this question, you should immediately follow-up with something like …
“If I pay cash and close quickly … what’s the least amount you could take?”
Amazingly, just by simply asking this question you’ll oftentimes get an immediate reduction. Last time I did this, the Seller reduced his asking price from $105,000 … to $90,000!
#3: Determine What the Seller Owes
This will allow you to determine the equity in the property, plus it also allows you to possibly structure multiple offers. In addition to all-cash, maybe you can also offer some type of seller financing option … or even a Lease Purchase arrangement.
Why is this important? I’ve always found that making 2 or 3 offers, rather than just 1, has often increased my acceptance rate by 200-300% or more!
#4: Determine Repair Costs
You can often come up with a “ball park” figure for repairs if you get good at asking questions about the condition of the property during your initial conversation.
Good questions to ask are:
“If you were living in the property for the next few years, what would you fix?”
“Is there anything you would replace?”
And just keep on digging if necessary. Asking the right questions can take you a long way towards determining repair costs and whether or not a property is even worth visiting.
#5: Determine the After-Repair Value (ARV)
This is what the property will be worth once it’s all fixed up, and it’s the most important number in the whole process!
There’s a couple of ways you can determine the ARV …
One way is to tap into online sites like Zillow and Eppraisal, which can put you in the ball park, but ideally you want comps from a local Realtor who has access to the MLS (Multiple Listing Service).
That’s definitely the most accurate way of establishing ARV and the best way to go … as MLS comps represent the true ‘retail’ market.
So anyway, that’s a brief little primer on the 5 basic essentials that you must know about a property – right off the bat, as quickly as possible.
If the numbers meet your criteria, then and only then, do you proceed to doing a more in-depth analysis and greater due diligence.