The one thing you MUST be great at to be an unstoppable real estate investor
Updated: Sep 11, 2019
If there is one thing you need to know how to do to be a successful real estate investor: it's running the numbers. This is how I personally come up with my offer to buy a property.
Let me walk you through a REAL OFFER I made on a REAL PROPERTY in my area. It's a single-family home. Things are different when analyzing a multi-family house or commercial real estate.
This sheet is my one-stop-shop when making offers! ...
I'm NOT great at math. I've always been more of a reading, writing, creative-type! But running the numbers for real estate is simply about using the same formula over-and-over again.
Yes, the formula here is a bit more complicated. In the beginning, I spent a lot of time "running the numbers". But as my process as evolved - and to make life easier - this sheet was created.
You can download my spreadsheet here.
Now let me walk you through how to use it...
Step 1: Basic Info
Fill in the address of the home you may want to make an offer on. Make sure you include the taxes - this will be important when figuring out your costs later!
I like to include beds, baths, house and lot square footage so I know I can quickly glance and know I am only incorporating SIMILAR properties into my analysis. If some guy has a lot or a house triple this size, it shouldn't be on my sheet!
I'm a visual person, so I also like to add a photo of the subject property! But this is up to you! You can barely see the house in this one with the trees and bushes so overgrown! HA! Gotta love these fixer uppers!
Step 2: Existing Value
Here is where we find out WHAT IT'S WORTH TODAY, in it's current condition. You should have a realtor pull homes with the same bedroom and bathroom count, 0.25-miles from the subject property, sold within the last year. If you must expand your search a little bit to find comps, do so incrementally so your finding the closest match available. I then go through the pictures to confirm they're in a similar state of disrepair.
On the sheet, plug in: an address, sold price, bedroom/bathroom count and the homes square footage/lot square footage. I also like to make the address link back to the zillow listing for quick reference.
The existing comps median will calculate for you automatically. Your offer will not. This is up to you, but these numbers should be your guide
In the case of my example, there are only 2 homes I personally found to be comparable. Both have 3-bedrooms, but similar square footage. And they sold for a LOT more! So this house isn't a bad deal.
While my existing comps were at a median of about $240,000 - the list price is only $130,000 so I'm going to just go a little bit above that with my offer.
Step 3: After Repair Value
You're now going to do the same thing on the right side of the spreadsheet. Except here, you're obviously going to be inputting comparable properties that are all fixed up! I plan to convert this home to a 3-bedroom and I think these finishes and the locations and size are all a close match.
Your after repair value or a median of the comps will automatically generate at the top of this section. The sale field below that is left blank for when you SELL! To see how close your numbers at the outset were to reality.
Step 4: Loan Terms
Last but not least, at the top right of the page you should adjust the interest rate and points you typically pay for hard money. Or if you plan to pay all cash, you can delete this!
If you are unsure of what rate and points to put, you can leave what I have here as a good rule of thumb for what most hard-money-lenders are charging at this time.
Step 5: Add your renovation costs. And make your offer!
Plug in your estimated renovation costs to the last listed field above.
You can also change the 6-month holding time to more or less.
Closing costs include buying & selling closings - assuming you are going to flip this house. They include a 5% realtor sales commission and closing costs comparable to what we've experienced for buying and selling.
A couple things you should know before you put in your bid:
First, we baked in a 10% margin of error. So your profits could be HIGHER than projected here, or they could be less. Which brings me to my second point: I am not an all-knowing expert! This is simply MY WAY of making offers. So it is so important that you do your own due diligence and only offer what you are comfortable with.
I did put an offer in on this example property. As of the date of this post, I have not been selected as the highest bidder. But if that changes, I will let you know!