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6 Step Property Analysis System

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Lesson 1 – Start Here

Note from the Author

NOTE FROM THE AUTHOR

I’m Robert Nickell and I’m the co-founder of Rocket Station.

Our focus is simple: help real estate investors make the most of their businesses with simple solutions and services that they can tap into right now.

We will delve right into the tips, tricks, and must-tries I’ve perfected over my career that, leveraged in their entirety, will ensure you’re taking a smart, strategic approach to every lead that crosses your desk.

Do that, and you’ll maximize your time and your talent—the two most valuable weapons in your real estate investing arsenal.

Download and print this 6-Step Property Analysis Execution Plan as your guide for the duration of the course.

The Property Analysis Blueprint is a proven system that helps real estate investors to correctly value and analyze investment property.

RESOURCES AND LINKS

How to Use This Execution Plan

HOW TO USE THIS EXECUTION PLAN

Here’s how to get the most out of the content from the Property Analysis Execution Plan.

It’s easy to get caught up in the content and next steps outlined in this Execution Plan—and it’s natural to want to stop reading and start implementing.

While the enthusiasm is great and definitely warranted, it’s important to read this entire guide before diving into next steps. By reading from start to finish, you’ll walk away with a “big picture” understanding of the property analysis process—and that will help you achieve more in the short- and long-term.

When you’re finished with the Execution Plan, work through this entire guide from beginning to end. Don’t skip around or pick the steps you like best or the ones that seem simplest to you.

This plan was meant to be used in its entirety, and each of the steps feed off of and into the others. If you don’t execute all, you won’t get the same results as you would if you work through strategically and systematically.

Download Your Handouts

DOWNLOAD YOUR HANDOUTS

As you’re reading through this Execution Plan, you’ll see downloadable handouts mentioned. These are essential pieces of the plan, and you’ll want to be sure you’re reviewing and integrating each of them in your process. Don’t skip ahead and don’t worry about downloading all of the handouts now—they’ll make much more sense as you work through this.

The Property Analysis Blueprint is a proven system that helps real estate investors to correctly value and analyze investment property.

The Seller Lead Sheet is a simple and easy-to-use CRM for Google Sheet designed for small business to track sales and leads efficiently.

The Agent Enrollment Blueprint is step by step guide on how to find, engage, and activate real estate agents to help you find and secure the best deals.

There are lots of factors that help determine if a real estate comp is indeed comparable, and you need to know these Running Comparables Checklist to be able to arrive at an accurate “fair market value”.

Google Maps gives you a number of ways to view a property. Here’s a walkthrough on how to analyze property using Google Maps.

Lesson 2 – The Importance of Property Analysis

The Importance of Property Analysis

Property analysis is a critical piece of the real estate investing process. By tapping into a variety of tools and resources, investors can collect and assess vital information about a potential investment property—and, armed with that data, make informed decisions and take strategic next steps. Without thorough property analysis, real estate investors would be flying blind, making decisions based on gut and the limited intel sellers are able—and, in some cases, willing—to provide.

Analyzing properties will help you answer the following questions

IS THIS LEAD WORTH PURSUING AND INVESTING ADDITIONAL TIME ON?

Before you even head out or send your inspector/acquisition manager to meet with the seller, does this property make sense for your portfolio? This doesn’t necessarily mean you’re going to buy but that you’re willing to do a little more due diligence to assess the deal.

WHAT COULD THIS PROPERTY POTENTIALLY SELL IF I INVESTED THE TIME AND REHAB?

This will give you a clear-cut exit strategy that will help you make the right decision for your business. To get here, you’ll need to look at the surrounding neighborhood, local standards and marketplace conditions—even a slight shift in the market or seasonal change could drive a property value up or down.

While this may seem like an overwhelming task, the good news is property analysis can be relatively simple and straightforward. Thanks to the internet and a host of other investor-friendly resources, even a new investor can dive right in and begin effectively and efficiently analyzing properties—really, it’s that simple.

In this business, if the numbers add up, then you want to make a move. If they don’t add up, you want to walk away—even if you love the property and even if your “gut” says otherwise. Real estate investing comes down to the numbers and the bottom line. That’s it.

CALCULATE AFTER REPAIR VALUE (ARV)

There are many different numbers and data points you can and should consider as you’re weighing the pros and cons of a particular property. But more than any others, you’ll want to focus the most on a property’s After Repair Value (ARV). This is the price that the subject property will be worth after your proposed rehab work.

HOW TO CALCULATE ARV

The best and most effective way to begin calculating ARV is to look at comparables or “comps.” Comps are recently-sold properties that are similar to the property you’re considering—think the same number of bedrooms, bathrooms, similar square footage and sale prices within a few thousand dollars.

By having comps that sync with your property style, location and price, you’ll be able to make a better “apples to apples” comparison. By doing that, you’ll be able to say, if THIS property sold for $X, then MY property should sell for $Y with confidence.

Keep in mind, you’ll be looking at comps for what your investment property will be post-rehab. So, for example, if you’re considering a distressed home that, with $75,000 worth of rehab work, will be a modern four bedroom, three bathroom Colonial home with a full finished basement, home office and patio, be sure you’re looking at other four-bedroom/three-bathroom Colonials with finished basements, home offices and patios. You may not hit exactly right. You may need to give or take on some of the property attributes, location or sale date. But chances are, you can get pretty close. The closer you can

At the end of the day, a property is worth what a buyer is willing to pay for it. During hot market periods, a buyer might pay $350,000 for a property. When the market drops and the economy weakens, a seller may have a hard time finding a buyer to pay half of that. Same goes for a host of details about the property. For example, two almost-identical homes could be within feet of each other, but one could be zoned for an A+ school district and one for a less than desirable district. The home in the better district could sell for tens of thousands or even hundreds of thousands of dollars more, depending on the area.

These are all factors that can and should weigh into your property analysis. But, when all’s said and done, a property is worth what someone is willing to pay for it. There are a host of reasons why buyers would or wouldn’t see value in a property. Your job is to understand and assess those factors to come up with an ARV and investment strategy that makes sense for your business.

WHAT TO DO WITH ARV

Once you’ve looked at the comps and determined your ARV, the next step is to USE IT. With a sense of what the subject property could sell for, you can move ahead in calculating your Maximum Allowable Offer (MAO). An MAO is the most you should pay for an investment property to ensure you’re still making a strong profit and, beyond that, still have some wiggle room should rehab work or marketing costs tick up a bit.

ARV x 0.70 – Repairs = MAO

So, for example, if you find a property that, with $45,000 work of rehab work would have an ARV of $225,000, your calculation would look like this:

$225,000 x 0.70 – $45,000 = MAO $157,500 – $45,000 = $112,500

In this scenario, the most you should pay for the subject property is $112,500. After investing $45,000 in rehab work, you’ll wind up with $67,500 in profit (not factoring in other expenses like closing and holding costs). A seasoned investor may make an offer a bit below the $112,500, though, to give a little room for negotiations. It all depends on market conditions and whether or not there are other prospective buyers in the mix. In some cases, you’ll have to make your “best and final” offer on the spot—another reason having your ARV and MAO at the ready is so important.

Armed with this information and powerful data points, you’ll be able to review your potential rehab plans and calculate where this property will likely land when you list it. While this may not ultimately be the price your investment property sells for, it’s a rock-solid jumping off point for determining which deals to move on and which to pass on.

Download our Seller Lead Sheet template that you can customize and use for your business. Be sure to log everything in your Seller Lead Sheet and/or save PDFs/take screenshots as you’re calculating your ARV and determining next steps, and having it all in your property folder will save you time.

The Seller Lead Sheet is a simple and easy-to-use CRM for Google Sheet designed for small business to track sales and leads efficiently.

RESOURCES AND LINKS

Lesson 3 – The 6-Step Property Analysis Process

STEP 1: Create a Property Folder

STEP 1: CREATE PROPERTY FOLDER

This is fairly straightforward—literally, create a folder for every prospective investment property. The folder can be created on your computer desktop or, better yet, on Google Drive, Dropbox or another cloud-based platform. By putting folders in the cloud, you’ll always be able to access and share them, whether you’re in front of your computer or not. Virtually all cloud-based solutions also offer companion apps or solid mobile access so you can even pull documents and details on the go.

BUILDING A PROPERTY PACKAGE

Once you complete these six steps, you’ll have a comprehensive “property package” at your fingertips. All of this information should be included in your property folder.

We’ll dig into each of these in the coming pages. But keep this list handy so as you’re fleshing out your property folders, you can be sure you have everything you need. These packages are an important tool in determining whether or not opportunity exists with that particular subject property.

Each folder should be named for the property’s address—for example, 2 Garden Court or 4 Broadview Drive. As you collect information and intel on the property during this process, be sure to store it all in the appropriate folder. This may require scanning paper documents, so you’ll want to either purchase or get access to a scanner, or download a scanner-style app on your smartphone. These free and low-cost apps use your smartphone camera like a scanner, “scanning” and sending the resulting PDF or JPG files to your inbox for easy download and storage.

STEP 2: Update Seller Lead Sheet

Your Seller Lead Sheet is a critical tool in your real estate investing arsenal. This simple sheet is designed to help you gather as much property information as possible so it’s always at the ready as you’re working through ARV and other property analyses. It will also be the place you keep ongoing notes about the property as you’re analyzing and assessing.

As you, your VA or your acquisition manager are talking to seller leads, you’ll be able to ascertain all or most of this information. Anything that’s shaky or unknown can be verified in step three when you pull a property tax card.

Download our seller lead sheet template that you can customize and use for your business.

RESOURCES AND LINKS

STEP 3: Review Property Tax Cards

Property tax cards provide a wealth of information about a property and are central to local governments’ property tax calculations.

Every property is subject to property taxes by their local government. Even after a property is owned outright, the owners still have to pay monthly or quarterly taxes to support local services—think schools, trash pickup and more.

No matter the area, property taxes are based on a property’s assessed value—and that assessed value is readily available online. The town or locality’s assessor will update assessed values periodically, and in some cases, a homeowner may even dispute the value if they feel it isn’t in line with market climate or conditions.

Because these tax cards are a major source of revenue for local governments, there’s a lot of valuable information in each, including:

THE CITY OR TOWN’S APPRAISAL AND HOW THEY VALUE THE PROPERTY

Keep in mind, these are typically updated every few years, so they may not reflect real-time marketplace conditions or changes

KEY PROPERTY DETAILS

In most cases, this includes bedroom and bathroom counts, square footage, lot size and other key details. In some cases, you’ll already have these on your Seller Lead Sheet, but it’s good to double check. Many homeowners don’t know exact square footage or lot size, for example, or may have misinterpreted the numbers when they bought.

One of the most important reasons to review property tax cards is to spot any of these discrepancies. If you do see one, it will impact your ARV and, separately, could be a powerful negotiating tool as you’re going back and forth with the seller.

HOW TO FIND TAX CARDS

Visit http://publicrecords.netronline.com/

You’ll need to know the subject property’s county to proceed. If you don’t know, use the county converter on the left hand side of the page. By inputting the town or zip code, you’ll be able to get the correct county.

Click on the state you’d like to search, then select the county. Each county has different public record access and options. Once you click on the subject property’s county, you’ll get information on how to search those public records:

Each county has different public record access and options. Once you click on the subject property’s county, you’ll get information on how to search those public records:

For example, these are the public records for Nassau County in New York State. Click through on the County Clerk’s link and you’ll land on the public record search for Nassau County, including an option to search property tax cards:

In this example, you can search by recorded dates—when the property was officially recorded by the county—or document number.

From here, you’ll be able to search and pull up a property tax card for the subject property:

Again, once you have the card, you’ll want to review for any discrepancies and confirm any outstanding information. This should all be input into your Seller Lead Sheet.

STEP 4: Use Google Maps

Google Maps is a great tool for real estate investors. Often, a property looks great based on the initial photos and Seller Lead Sheet information, but once you survey the entire immediate neighborhood, you realize all isn’t as it seems. Sometimes, the opposite is true—the property is so-so, but the neighborhood is perfect. Those properties can be treasure troves—you can do a lot to improve a house, but can’t do much (if anything…) to change a neighborhood.

Google Maps gives you a number of ways to view a property, including aerial views, street views and virtual walkthroughs. To make the most of Google Maps:

GOOGLE MAP WALKTHROUGH

First things first—go to the Google Maps website at https://www.google.com/maps

Input the address of the subject property and search. You’ll get an immediate aerial and street view:

This view shows you where the property is located. Ask yourself:

Is the subject property located on a busy street?

Is the property near any major highways?

Is the property near any desirable locations/amenities—for example, parks, playgrounds, schools, shopping, restaurants and public transportation?

Are there any discrepancies between your Seller Lead Sheet and the Google Map view?

Once you’ve reviewed, click on the street view to get a better look of the property and its immediate surroundings.

Ask yourself:

Is this property like all of the others on the street? Is it better? Worse? With a little TLC, will the property “fit in” when you’re done? Keep in mind that a great house in a less-than-desirable neighborhood may still be a tough sell.

Does the neighborhood align with your goals for the property? In other words, would the type of buyer you’d be targeting be interested in a house on this street?

Are there major issues you see with the neighborhood and its immediate surroundings? Busy streets are a big one but depending on your market, there could be others.

Google Maps gives you a number of ways to view a property. Here’s a walkthrough on how to analyze property using Google Maps.

RESOURCES AND LINKS

STEP 5: Running Comparables

As mentioned in section two, the ARV for any property is based on comparable, recently-sold properties—AKA “comps.” In this step, you’ll run comps for the subject property you’re considering to help you complete your property analysis.

How to find property comps

The majority of real estate investors use Multiple List Service (MLS) to pull comps. This site is open to the public, but real estate agents and brokers get professional access that other buyers don’t. If you aren’t a licensed agent or broker, you’ll likely be able to tap your agent or a licensed agent in your office to handle some of the research in this step.

Some real estate investors, though, opt not to use MLS or choose to use it in conjunction with other industry resources and websites.

What to look for

Comps should be as similar to the subject property post-rehab as possible. By looking at what buyers paid for comparable properties recently, it’s easier to determine with confidence what a buyer will pay in the coming weeks or months when you’re ready to flip. The more comp examples you can find, the more confident you can be in your ARV calculations.

As you’re pulling comps, you’ll want to pay specific attention to

Days on Market (DOM) low days on the market indicate properties are selling quickly, while higher DOM counts mean they’re sitting for extended periods. Look for properties that have been on the market for a similar number of days as the subject property, and look at how long comps sat before selling so you can understand how long it will likely take you to make a successful flip.

Agent descriptions and private remarks this will only be available with a professional MLS subscription. These remarks provide valuable information from agents, including facts and subjective assessments that you’ll likely not find anywhere else.

Property pictures almost all properties will have at least some images on MLS or other real estate websites. Take a few minutes to review and look for any discrepancies or areas of concern that you can dig into in-person or over the phone with the seller.

Occupancy status is the property occupied or vacant? If it’s vacant, the seller is probably very motivated to sell.

Pricing history be sure to look at what the owner paid for it and when they bought, as well as what the original list price was versus what it is today. Frequent or significant drops may indicate the homeowner is highly motivated.

Be sure to log everything in your Seller Lead Sheet and/or save PDFs/take screenshots as you’re working. You’ll likely need to refer back to this information as you’re calculating your ARV and determining next steps, and having it all in your property folder will save you time.

Things to remember when running comps

As mentioned before, there’s one major rule of thumb with comps: more is MORE. The more quality comps you can pull, the better your ARV and overarching analyses will be. That will enable you to make better, more confident decisions about your investing next steps.

But, of course, no two properties are exactly alike. That means, as you’re running comps, remember:

Comps should be as physically close to the subject property as possible. Aim for properties within ½-mile of the property you’re considering—closer, if possible. If you can’t find any comparable, recently sold properties, go out little by little until you can. Property values can easily vary from town to town or street to street. The further out you go, the less likely your comp is to align with your true ARV.

A good rule of thumb? If at all possible, don’t cross any major highways, boundaries or borders when pulling comps. Each time you do, you get further from your possible ARV. The MLS Map can help you identify properties as close to the subject property as possible.

Comps should have identical—or worst case, similar—bedroom and bathroom counts as the subject property. Comparing a three-bedroom house to a five-bedroom house won’t yield a meaningful ARV. Ideally, comps will be within 10%-20% of the square footage of your potential investment property.

Also, look for properties built in or around the same year as the subject property. The closer you can get, the better.

Comps should be the same type of property. Trying to calculate an ARV for a single-family home by using a multi-family home doesn’t make sense and won’t yield a solid After Repair Value.

Comps should align with the quality/condition of the property post-rehab — be honest with the level and quality of work you’re going to complete if you do move forward with the subject property. Comparing a luxury property with high-end fixtures and smart add-ons to a low-budget rehab won’t yield meaningful results—and vice versa. Look for properties that mesh with your planned rehab work.

Ideally, pull three to five “active” properties—properties that have been on the market for 60 days or less—to use as comps. These will likely be the properties you’ll be up against if and when you flip the subject property. Be sure to note if the sale came with any special consideration—if, for example, it’s a short sale or REO—as you’re assessing.

Additionally, pull five to 10 recently sold properties to use as comps. These properties should have sold in the last 90 days, if possible.

STEP 6: Classify Property

By step six, you’ll have pulled comps, assessed ARVs and determined MAOs. From all of this, you’ll have settled on which properties you want to move forward with. The next and final step is to classify the profitable leads in one of four classifications:

TYPES OF PROPERTY LEADS

HOT LEAD

Leads driven by a very motivated seller; typically the seller has some external factor driving them to sell, such as a new home purchase on the hook, work transfer, death, divorce or problems keeping up with the mortgage/property costs. Hot leads don’t just want to sell, they need to sell. That means, more often than not, they’re ready to make a deal and negotiate pricing and other key terms.

Find a profitable hot lead and you’re in business. These deals tend to be relatively smooth and highly valuable to you, the end buyer. The only major challenge with hot leads? Usually, retail buyers and investors are onto them, too, and that means you’ll likely have competition for that particular deal.

To make the most out of these leads, make an appointment to see the property—or send your acquisition manager to see the property—that day, if possible. Because you have your analysis complete and both your ARV and MAO calculated, you should be prepared to walk-through the property and, if all syncs, make an offer.

WARM LEAD

Warm leads typically want to sell, but don’t have the same influencing factor (i.e. a pending move, job transfer, divorce proceedings) like a hot lead does. The end result? Warm leads will likely hold out for more competitive offers, better terms and, sometimes, multiple bids. This likely isn’t a deal you’ll be able to get by low-balling, at least not at first pass.

While it’s important to entertain warm leads, often real estate investors opt to make an offer. If it doesn’t pan out, they keep their eye on these leads over the next few weeks or months. If warm leads suddenly get HOT—which happens fairly frequently—then things could change and your offer could look very compelling. Likewise, if that warm lead doesn’t get the kind of offer they envisioned in the first few weeks, they may drop the price and their sky-high expectations.

DEAD LEAD

Without some crazy and over-the-top offer, dead leads probably aren’t going to sell…at least not right now. Some dead leads are truly dead—maybe they just reached out to get a sense of what their home was worth and to gut-check some of their own expectations surrounding a future sale. In other cases, they were a warm or hot lead and their property got scooped up.

In other cases, though, the lead was warm or cold—they considered selling, but without any real pressure or external factors pushing them to make a deal, they don’t. It’s possible you even made an offer at one point or another, and they either passed or came back with some ridiculous counter. Because you couldn’t come to an agreement, you walked away.

Dead leads are worth keeping on your radar. If the property is still on the market, you may have an opportunity to circle back to a deal if they don’t wind up with an offer early on. If they did sell to someone else or decide to take their property off the market, you may be able to make the connection for next time, or pick up a new lead—that seller’s friend, relative or neighbor—within their inner circle.

AGENT REFERRAL

These leads come directly from agents within your agent referral network. These agents send you leads consistently, and work with their sellers to get the deal done quickly and on mutually beneficial terms. Having agent enrollment leads is a great, turnkey way to build your business—agents send the best leads and the most motivated sellers to you daily. Really, what could be better?

The classification your leads fall into will dictate how you follow up. Hot leads, again, need to be tended to immediately so you don’t lose out to another investor or retail buyer. If you can book a same-day viewing, do it—and be prepared to make an offer. Warm leads should also be engaged quickly, but it’s important not to get caught up in the back-and-forth if they don’t accept your offer. If you’ve built in some wiggle room, it’s fine to use it. But never go outside what your ARV and MAO dictate. That’s when real estate investors get into serious trouble.

Agent referrals should be treated like hot leads, at least at first pass. Agents in your enrollment network know you, they know your business and they know what you’re looking for. They also know they can generate a major payday very quickly by connecting you with the right sellers. Good agents can connect the dots, and understand that their role is to bring you motivated sellers who are ready to make a deal and whose properties sync with your needs and expectations. So move on these quickly, too. The more you can show agents you can get the job done, the more deals they’ll bring you.

And dead leads? As I mentioned above, dead leads still have value. Their next property could be your next great deal, or they wind up purchasing a rehabbed property from you down the road. If you make a good impression, there’s endless potential. If you feel like that door is closed, don’t be afraid to ask for referrals. Everyone knows someone who’s looking to buy or sell. Why not ask who they know and see if you can make something happen that way?

Remember, deals are NOT created. If you have to manipulate the data to make it work, it’s NOT a good deal. It is or it isn’t a deal. There’s no in-between and no gray areas. This should be the simplest piece of your business-building. Don’t cut corners, don’t skip steps and be sure you’re pulling meaningful comps and working through the numbers each time. If you do, you’ll spot and secure more good deals and ensure your business grows and evolves now and in the future.

Doing your due diligence is a necessary piece of the real estate investing process—and that due diligence needs to start the minute a new seller lead crosses your desk. Thanks to all of the new technologies, access points and, of course, the internet, real estate investors have more access to info and intel than ever before, helping us all make smart, informed decisions about potential investment properties. That means, through careful analysis, you can make offers and close deals with confidence—and that beats going with your gut everytime.

By following this six-step process every time a lead crosses your desk, you’ll be able to quickly, easily and confidently make offers and drive deals to close. Armed with real numbers and real analyses, you’ll be able to walk through a property and make an offer on the spot—an offer you’ll be happy to stand behind from now to close. Why? Because you know you’ll make a meaningful profit when you flip that property.

Each of these six steps is essential to the process, so be sure you’re working through all of them in order. If at any point the numbers don’t make sense, WALK AWAY. This isn’t a “gut” business—this is a data-driven business. If the data doesn’t add up the way you need it to, there’s no point wasting another minute of your valuable time trying to force things to work.

Good luck!

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