Flipping Houses: How to Properly Analyze Your Flip
December 16, 2014
When one is learning how to make money in real estate by flipping houses, property analysis defined is “a study made to familiarize one with the nature and condition of a building, its relative market position, and its estimated income and operating expenses”. Flip analysis and property inspection can be a make or break scenario for many real estate investors. It’s at this point when one determines whether or not your property has value or it’s a dud.
There are two extremes that most investors can be categorized into:
1. The investor that over-analyzes the deal. This is often referred to as “analysis paralysis.” Beginner investors are often so anxious about the deal that they spend far too much time analyzing the rent rate, the cap rate, days-on-market, and every other little tiny detail regarding the property and the neighborhood. These investors overanalyze the deal to such an extent that while they’re wasting time overanalyzing the deal, another more seasoned investor, who can make their decision in ten minutes, swoops in and stalls the deal. Before you know it, the deal is gone while you’re still pouring over color combos on seventeen different pie charts!
2. The investor that doesn’t analyze anything and has no clue as to what is currently going-on in their market. They have no idea whats driving the market in their area, and just heard a rumor from their wholesaler that they’ve found a good deal…so they buy it without doing any research! In reality, these investors have absolutely no idea what they just bought and are never able to establish the true ARV for this investment.
The successful investor, however, does their best to stay somewhere in the middle. They know their market and what drives it. Consequently, they are able to quickly determine whether or not it’s a quality deal. This is something that every investor must learn how to conquer or risk being left in the dust of more experienced, successful flippers.
For example, just in the past week, I received an email from one of my wholesalers listing a buy/fix/sell in my current investment area. Within twenty minutes, we were on-site analyzing the deal. Ten minutes later, we were under contract! So within thirty minutes of receiving an email, we had the property. This is further proof of how quickly the market moves and is one of the ways that I’m able to stay heads-above my competitors.
There have also been times which I received notification of an available property that was so good that I bought it right there on the spot – “site unseen!” I never left my desk. This is not me recommending this course of action for everyone, every time. The point is to give readers an example as to how fast the current market is moving. One must learn to quickly analyze a property!
In this series, my plan is to teach you the two major components to analyze a property:
1. Online analysis
2. Offline analysis
1. Online analysis is about analyzing the property right there from your desk. There are always specific stats that we check to assign value: location, neighborhood, what homes have sold recently in that area, schools, crime, average days on market, etc. The important thing here establishing the ARV and I’ll teach you how to do that during this series.
2. Offline analysis is actually going to the physical property and inspecting it. One cannot bring three different contractors onsite and get three different bids and scopes of work before you purchase. You need to buy it before someone else does! Obviously, time is of the essence. One must quickly establish important facts such as: required construction, the budget, budget breakers, etc.
There are several forms that I use for my offline analysis so I never miss anything…this is where our system kicks in:
1. Three page Property Analysis Form
2. Budget Cheat Sheet Form
These two forms help me determine whether or not it’s a good investment, within thirty minutes!
This is what I will be teaching you throughout this blog series!
