Finding good deals is essential to the life of a real estate investor. But when you’re a newbie, it can be super overwhelming to even understand how to even figure out what a good deal looks like. Here are four ways to understand what a good deal actually looks like:
1. Ask a seasoned investor
Find somebody who is actively doing deals in your area or in the market you’re looking to buy a property. Ask some questions like what his last deal looked like, where they buy their deals, what they’re paying for their deals, how they’re finding their deals, how much they’re putting into them, how much they’re running them for and etc. People love talking about their deals. You may want to write it down once you start looking for good deals. You do two things when you ask questions, one you start gaining the information you’re looking for from a successful investor, second thing is you’re building rapport with a seller who’s actively doing deals and that’s huge because once you go out and start finding good deals, if you don’t have the money to take it down yet, you’ve got somebody who you know you can take that deal and you can partner with. You got something of value that you bring to them and it can really help you get going and really catapult your business.
2. Ask professionals
When we say professionals, these are the real estate agents but not just any real estate agent. Ask a real estate agent who is either an investor or who only works with investor clients. That means, that real estate agent is probably around investors all the time and so you can ask them questions like; what people are investing in this certain town, at what price point they buy their properties or what price point do you see them charging for rent and you’ll start to glean some of those nuggets about what a good deal looks like in different areas of that town by speaking to a professional. You’ll also be building a relationship and that’s huge because it’s a great source of deal flow. Investor friendly agents typically have pocket listings which are listings that are deals that aren’t going to get listed for some reason, maybe a certain seller doesn’t want to list them on but is willing to sell. And so you are going to gain access to other investors and other deals by building that rapport as long as you’re continually having an open dialogue with them about kind of what they’re seeing in the market.
3. Use real estate apps
You can just filter for the neighborhoods that you’re looking for and then you filter for sold properties and you can filter for sold properties in three months six months in the last three months in the last six months right in the last year or two. The idea is that you filter for properties that were sold in the neighborhood that you’re interested in and then as you filter and find those properties that are sold you start to look for the ones that sold for the least amount and then make note of those addresses right so write down those addresses in those neighborhoods of the properties that sold for the smallest amount and then you can take that list and you can go to your city records or you can go to prop stream or deal machine or any source that would allow you to access the owner’s information and what you’re looking for there is you’re looking for llcs or corporations that own those properties. Once you write down all the properties that this llc or these corporations bought in the neighborhood you’re looking to buy, you can then go to the state website that has all the llc information and you can actually reverse look up the llc and find the owner of the llc. Sometimes you’ll get the registered agent instead of the owner and that’s okay, you can then look up that owner information and then you can look that up on a free website like true people where you can look up people’s information. Give them a call you can call them, build rapport and maybe later on offer them a deal.
4. Use 70 and 1 percent rule
The 70 rule basically says you want to buy a property at 70 percent of its market value minus the repairs that it’s gonna need. So let’s say you buy a property and the value of that property after it’s fixed up is one hundred thousand dollars the seventy percent rule says you need to purchase that property at a thirty percent discount which means you can’t pay more than seventy thousand dollars for that house now if that house needs some work and repairs. In this example let’s just say it needs twenty thousand dollars worth of repairs that means you now have to subtract twenty thousand dollars from that seventy and that gives you your purchase price so that would put you at a purchase price of fifty thousand dollars. So the seventy percent rule says if a house is worth a hundred and it needs twenty thousand dollars of repairs you can’t pay more than fifty thousand dollars for that house. The next rule of thumb is the one percent rule. The rent that is gonna get you for that property needs to equal one percent of your all-in purchase and renovation price. Same example, if the house is worth a hundred thousand dollars but we’re paying 50 because it needs a 20, 000 renovation and the rents equals to thousand dollars a month after it’s fixed up, you’re well over the one percent rule because your all-in costs are fifty thousand plus twenty thousand so you’re all in for seventy but your rents are a thousand which is higher than one percent of seventy thousand all that means anything above one percent is probably just above break even. Ideally you want to be higher than one percent. You don’t always have to hit those numbers in order to know that you’re getting a great deal because there’s other factors that come into play like location and crime and all these other statistics that also come into play to let you know if a deal is a good deal.
To know more, please don’t hesitate to email us at contact@ozbroker.com.au or you may give us a call at 0426667696.