How to Quickly Analyze a Single Family Home for Investment

by Brandon · 10 comments

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Looking for the “right” home to buy can take a lot of time and effort, especially when trying to comb through the hundreds or thousands of deals that are on the market today. It is important not to waste time and maximize your efforts (see my last post on the 80/20 principle).  The following is the quick mental math that I use to analyze a single family home quickly and decide if it’s even worth looking into.

First, I only look for homes in areas that I am financially comfortable with. So, if I am not comfortable with the average sale prices, rent prices, days on market, etc of a given area – I learn that first. I live in a fairly small community, so it is fairly easy where I live.  If you live in a large area, like a major city, you should be focused on a small area that you can fully wrap your mind around. Never invest where you don’t know the market.

Second, I determine how much it is going to cost me to rehab the place. This is a VERY loose number, and generally just use $10,000 for a small paint/carpet turn,  $20,000 for a medium turn, and $30,000 for a major remodel. This includes labor, material, closing costs, and holding costs.

Third, I look at the purchase price and add the repairs. So, if I found a house for $65,000, and it needed $10,000 in repairs, I use the number $75,000.

Fourth, I then take that final number and knock off two “zeros”. This gives me a good estimate of my monthly mortgage payment with taxes and insurance. So $750 becomes $750 per month. I know this is a bit high, but I like to be conservative.

Fifth, I add a few hundred for vacancies, repairs, etc. So I might say this property is going to cost me on average $1000 per month.

Finally, I just need to know what the average rent will be. If the average rent, on the low side, will give me $200 per month in cashflow, this is probably a deal worth looking into. If not, I’ll move on. Additionally, if the total cost I would have invested in the  the property is $20,000 less than it’s value, then I will also move forward.

I believe any property needs to have both positive cashflow and good equity. There are too many good deals today to buy something that doesn’t have both.

That’s pretty much my quick and easy strategy to sort through all the listings to find a gem. I do this whole process in about thirty seconds per home, and it has worked great for me. Obviously, if I decide to pursue it in more detail I will learn exactly how much repairs are going to cost, what the mortgage will be, and more. This is simply a very quick way to sort out 90% of the deals and only focus on the ones that might be good.

 

image credit: NNECAPA

 

About Brandon

has written 199 Awesome posts in this blog.

Brandon Turner (G+) is the BiggerPockets.com Senior Editor and Community Director and owner of RealEstateInYourTwenties.com. He is also an Active Real Estate Investor (Flips, Apartments, and Buy-and-Hold), Entrepreneur, World Traveler, Third-Person Speaker, and Husband. Come hang out with him on Twitter!

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

P.S. Looking for more real estate investing knowledge? If you are interested in a top-notch course to help you understand the nuts and bolts of creative real estate investing, I would like to recommend Ben Leybovich's Cash Flow Freedom University. Ben is a close friend and has been my trusted adviser for years. He's a smart guy and CFFU is pretty awesome. The course is waitlisted, but while you wait for an opening Ben will send you tons of FREE content. Seriously. Click here to check it out.

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{ 9 comments… read them below or add one }

The Buy and Hold Guys May 30, 2012 at 4:51 pm

Nice roll-up Brandon.

Question for you – How do you hold your properties – Owner Financing, Hard Money, Private Money, etc?

Just curious if you base your figures off of all cash purchases or if you also incorporate leverage.

AG

Reply

Brandon May 30, 2012 at 5:25 pm

I’ve used them all – Owner, hard money, and private. But I really like good old bank financing – 30 year, low interest. Obviously, that’s the hardest to get. I’ve been focusing on working with partners to get those 30 year mortgages. I also sometimes will use hard money (or private) to buy a property, add a partner to Title, and refinance it into a 30 year fixed.

Also, I base my figures to include the cost of the mortgage. So, yeah – leverage is key. Obviously, paying cash for a house would be great but since I’m young and not yet a millionaire, I’m stuck with being creative!

Take care!

Reply

The Buy and Hold Guys June 1, 2012 at 4:27 pm

B,

I’d love to hear more info on how you structure your credit-partner deals. It is really hard for me to get loans now days. I have someone who is interested, but they have ZERO cash. I’ve always been nervous about sticking my cash in his bank account for 3 months waiting for it to season.

AG

Reply

Brandon June 1, 2012 at 7:28 pm

Just for you, I’m going to write my next Bigger Pocket’s blog post about this. Look for it on Sunday on BP’s blog 🙂

Reply

The Buy and Hold Guys June 1, 2012 at 7:29 pm

You’re an ANIMAL – love it!! thx!

Don June 5, 2012 at 6:55 pm

I agree, finding good properties with equity and cash flow aren’t too difficult, but as you said you have to know the market. In Northeast Florida, our rental market is really tight, we have cheap money and the prices are still down, but they are starting to go up. Most cash flow even with paying for professional property management.

Reply

Brandon June 6, 2012 at 2:16 am

Sounds like the same situation we got here on the Washington coast. The way I see it – if prices stay the same forever – it doesn’t really change a whole lot. Making equity when we buy and monthly cashflow is where it’s at. Appreciation is just icing on the cake. It would be nice to sell my flip soon though! Thanks for stopping by!

Reply

Iman August 24, 2015 at 4:23 pm

Hi Brandon,
Thank you for this post!
As a newbie into this business, one of my most pressing question is to know how to find a good deal so this is great for me.
I have a question for you. In you post, you mentioned the following:
“Additionally, if the total cost I would have invested in the the property is $20,000 less than it’s value, then I will also move forward.”
How do you calculate the value of the house?
In this example, the house is sold at 65,000, the repair cost is 10,000, the estimated monthly expense is 1,000, and cash flow is estimated 200 a month. I’m not sure how to calculate the value.

Thanks!
Iman

Reply

Brandon June 1, 2012 at 9:28 pm

Thanks… I think? Rar!

Reply

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