Real Estate Investing Blog

When it comes to investing in real estate, success comes from knowing where to find the right properties, having the right connections and only making those real estate deals that will help to reach your goals. The only way that you can be sure that you are getting into the right deal each and every time is to learn all about deal evaluation.

Deal evaluation, once it is a process that you are used to putting to work in your business, is relatively simple. It just means making an effort to analyze the information that you have - the purchase price, for example, the cost of repairs that the property is going to need or, if it will be purchased for use as a rental unit, information about the cost of the monthly payment on the property, the rent the property will go for and how long it’s going to take to find a tenant.

In other words, deal evaluation is all about looking at the key elements of the purchase, looking at your long term and short term investment goals and knowing that, based on all of the conditional factors and determining whether or not you are going to make the profit you’re looking for.

One of the key elements of any real estate investment is going to be deal evaluation: every time that you are going to be purchasing a property - whether you’re thinking about a condo or townhouse, single family homes, professional buildings or multifamily properties - it is going to be important to evaluate the deal. The challenge is that, ultimately, deal evaluation should not be about whether or not you can afford the properties that you are looking at.

Deal evaluation, after all, is about determining whether or not the property that you’re thinking about purchasing is going to help you to reach your long term financial goals - your long term business goals - not about whether or not you have the funding to get the deal to go through. Financing your real estate investments, it important - it’s something that you’re going to need to do and to have in place - however, financing should never be the key determining factor in whether or not you move forward.

When you’re evaluating the deal, you should be looking at your goals. You should be looking at the market in the area. You should be looking at projections for the rental market or for business in that area (if those elements will affect your business). Financing is a completely different element; it’s the deal evaluation that will help you to determine whether or not to make a move.

When you are getting started in real estate investing, one of the things that you are going to want to be sure that you are looking at may seem like a small thing; but it’s actually quite a big deal: when you’re looking into real estate investing, you are going to find that deal evaluation is key.

Some real estate investors don’t focus on deal evaluation. They simply take a look at what their options are, and jump when they think an opportunity will help them. Others evaluate only those deals that they think will be beneficial - a sort of “just in case” approach to make sure that the deal will be as beneficial as it could be.

The most successful real estate investors, however, take deal evaluation to the next level: they evaluate all of the possible deals that are out there to see whether or not they are going to find an opportunity they might otherwise overlook; they are also going to find that they are in a position to see potential pitfalls. In other words, the most successful real estate investors know that deal evaluation is the key to their success - and they treat it as such.

One of the reasons why deal evaluation is so essential for real estate investors across the board - those who have been at it for a while and have plenty of experience as well as those who are just getting started in real estate investing all can benefit from evaluating deals before they are made - is that, while there are great investments and opportunities, there are also risks that real estate investors are going to take along the way.

Simply put, it’s through deal evaluation that you are able to understand the potential risks of purchasing one property over another. It’s deal evaluation that lets you know that you are able to focus on reaching your goals with the investments that you make - rather than finding yourself caught in an unpleasant situation down the line.

With deal evaluation, what you will ultimately be able to do is simple: you will be able to look at the risks and benefits of each transaction; you’ll find that you are able to weigh the pros and cons, to look at the big picture and to make informed choices. Unless you are able to understand the risks, you’re going to find that it’s mighty difficult to avoid making mistakes from time to time - mistakes that could keep you from reaching your goals.

When you are investing in real estate, deal evaluation is key. Part of the deal evaluation process, of course, is going to be having the property appraised; however, sometimes you will find that, when it comes to deal evaluation, the appraiser isn’t always going to get it right:

(source)When you invest in real estate, you’ll work with appraisers, often solicit their opinions, and of course, rely on their appraisals for your loan.

But never accept an appraiser’s opinion as the final word. To protect yourself against inaccurate appraisals, you must understand that some loan reps routinely tell their appraisers the value they need to make a deal work. In return, appraisers know that if they fail to give the right figure, the loan rep might select another. In other words, the appraisal might not accurately reflect market value for the investment real estate you want to buy.

Simply put, real estate appraisers may not be able to provide you with everything that you are going to need to know to determine whether or not you are making the right investment. While an appraiser may be able to assign a value to the property, it may not be as accurate as it could be. While an appraiser can give you some information, there are going to be a lot more points that you need to consider more than just that information.

Evaluating deals is about doing your own research; evaluating deals is also about being sure that you are looking at the big picture.

When you’re first starting out as a real estate investor, one of the things that you’re going to focus on right away is getting the knowledge that you need to get started. However, no matter how much you know about real estate investing, without deal evaluation you could get yourself into a less than ideal situation.

Deal evaluation isn’t simply a matter of looking at the amount that is still owed on a property, the price that the owner is asking and the value of the home in the market. In order to really evaluate the deal - to evaluate any real estate investment deal - you’re going to want to be sure that you are looking at the big picture.

For example, if you are going to be renting out the property that you buy, you are going to want to be sure that you’re thinking about how long it will take you to find the right tenants as well as the monthly rent amount. Rather than just looking at the price difference between the cost and value, you’re going to want to look at the market and how long homes are staying on it.

Simply put, deal evaluation is about more than just looking at the short term details; you’re going to want to be sure that you’re looking at the big picture.

There are two types of real estate investors. First, there are the investors who just jump right in, believe that they’ve heard everything there is to know and who aren’t always careful to be sure that they are making the right choices. And then there are the real estate investors who are successful.

Deal evaluation is the key to your success as a real estate investor. When you make an effort to evaluate the deal before you jump in, you’ll find that there are a number of benefits:

1. Deal evaluation lets you look at your options and to decide whether or not the investment that you’re thinking about making is a financially sound choice.
2. Deal evaluation puts you in a position in which you can explore your options and test different scenarios when a purchase doesn’t look as good as it could.
3. Deal evaluation gives you the chance to focus on eliminating risk and reducing the amount of stress that you’ll have as an investor (which also helps you to look at deals more objectively and to move on when the time is right).

Simply put, by taking the time for deal evaluation, you can be sure that you are putting yourself in a position in which things make more sense, everything is organized and you know whether or not you’re making those choices that will help you to grow your business and generate wealth as a real estate investor.

Deal evaluation is the key to your success as a real estate investor. Once you’ve got the basics of deal evaluation down - once you know what all of your options look like in terms of financing, renting the property out or turning over the sale - it becomes a lot easier to make the choices that will help you to succeed in your business.

Most importantly, however, you will find that deal evaluation allows you to eliminate a great deal of risk up front - before you spend and money on a property and before you run the risk of making a deal that isn’t anywhere near as good as it seems.

Deal evaluation is about understanding whether or not you’re getting the best price, about whether or not you are choosing the right financing options, about whether or not you are investing in a property that’s in the right market based on the trends. Deal evaluation is about taking the time to do your due diligence and to make sure that you’re seeing the big picture of what a deal is.

By taking the time to research all of your options and to evaluate the deal based on a number of different variables, you will find that you are able to approach the deals that you’re thinking about making with confidence. You will be able to know up front whether or not an investment is going to help you to reach your business goals and, more importantly, you’ll find that you are able to eliminate risk and to avoid bad deals before they are made.

Knowing exactly what to invest in when dealing with real estate investments will determine whether or not you’re making a good or bad deal. When a good deal is made, it means that the investor and the seller walk away feeling like they got what they wanted. Knowing what you hope to accomplish with the deal is the beginning of evaluating and making a good deal for everyone involved.

One thing that you’ll need to consider is that will make or break a deal and transaction good is the financing that you have to back it. This means that the right loan with the specific terms and needs should be applied. The right interest rate should be a part of this transaction.

The financial backing that affects the purchase you’re thinking about making should also be a good deal in terms of upfront fees and better rates. For example, some lenders or investors will offer the amount of backing that you need but have other fees attached that will add to your costs. Knowing to look out for terms that aren’t going to be beneficial to you will help you avoid the extra costs (and ensure that you’re getting the best deal). You can make sure that this part of the deal is good by investigating different hard money and commercial lenders along with private investors to see who has the best offer.

Another part of evaluating a real estate investment deal comes from the condition of the property. How much effort is it going to take to clean the floors and other places that have gotten dirty over time? How many updates are you going to need to make in order to attract the right type of buyer? Understanding the condition of the property also means making sure that everything inside and out is in order. A home inspector will need to move around the property to make sure everything has been maintained.

Finding the best real estate investment deal for your needs will help you to reach your goals. Buying and investing in properties without having to worry about hidden costs and problems with the maintenance of the homes will help you feel satisfied with your investment for a long period of time (and, of course, the best deals will also come with considerable profits). Investigating and knowing what you want is important in determining which deals to enter into and which deals to avoid when you make any real estate investment.

REO Question:

Dear Michelle,Thank you for this email. Here is a question I have for you.

Staying in touch with [the] REO [department] at a mortgage company after the [auction at the] court house steps could work to secure a property before it goes to a local realtor[, Right?].

In NC, the price jumps 5% with each bid after the courthouse steps. From your experience, can one contact a mortgage company immediately after the bid reinstatement period with a lower bid–one closer to the amount for which the bank took back the property, thereby cutting off the 5% jump in price.

(This assumes there have been no bids save for the bank’s on the property.)

Michelle’s Response:

(more…)