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Identifying a Good Deal | International Residential Real Estate Investors Association
Wednesday November 22nd 2017

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Identifying a Good Deal

Investors are always looking for a good deal.  And, often when they make this statement, our thoughts turn naturally to price.  I think we are well served to look at this a bit differently.  We ought first to identify a good property and then determine if price and terms can be met.

How do we do this and what are we looking for?

To begin with we aren’t ignoring price.  We should enter the process knowing the pricing could work.  Having established that though we can get down to details.

When I begin this process, I have a set of items I am considering.

First, is the market going to work?  To me, this means:

  • Is the transportation infrastructure good to superior for the property specifically and the market in general?
  • Are the schools good to superior for the market?
  • Are shopping and services good to superior?
  • Is there too much competing housing inventory constructed or under construction?
  • Are the demographics supportive? Income, age, ethnic, etc?
  • Is population growth supportive?
  • Is the crime situation positive?
  • Is the area poised well for strong economic support?
  • Does the property have good visibility supported by traffic that will meet your rent up needs?
  • Does the property offer characteristics that can drive demand positively beyond general considerations and why?

Next, I look at the property specifically considering:

  • Are there property specific maintenance issues?
  • Are there property specific tax issues?
  • Are there property specific cost of ownership or rentership issues?
  • Are there property physical needs that if not damage rentability?  How much do these cost to correct?
  • Can significant upside be achieved with property specific changes such  as adding a basement rental unit in a  single family home, changing to resident billed utilities for a multifamily property, upgrading AC and other features to achieve a higher month-to-month rent potential.
  • Are there other unrealized revenue opportunities such as new facilities or services that could multiply value.
  • What improvements have been recently  completed?  What value do they offer?
  • Does the project offer special financing advantages through seller held equity, seller financing, special agency financing opportunities, zoning opportunities, etc.
  • Are there opportunities offered from the property’s existing zoning and lot features that may offer value.  For example a location may support a digital sign or the site may offer multiple plots that could be sold post the purchase to improve the economic posture of the property.

From these, I develop a property specific investment, financing, and operating plan with strict timelines, firm budgets, and tradeoffs based upon terms. This is critical since property specific issues may impact the projects required loan terms, terms needed in the sales contract, accounting planning prior to closing, operating agreement requirements, and more.

In an actual case I closed, we purchase a 56 unit apartment building.  Our research turned up several very useful facts.  One, the office building included with the apartments was setting on its own lot.  Second, rents had not been increased in 8 years.  Three, the owners had set price on the wrong comparables.

On purchasing the described project, we were able to separate the office out and purchase it for no cost.  Second, we increased rents by 80% over 8 months time because of the discrepancy between actual rents and the best comparables.  Third, we were able to push $3,000 per month in utility charges on to the residents creating an immediate jump in profits during the first month of operation.  Finally, we converted the office to executive office space and 3x the acheivable commercial rents available on this project.

This project offers a very good example of how identifying a good project through good due diligence can produce tremendous results.

With these items in hand, I am ready to consider whether I can actually achieve and begin negotiating for terms that will meet my economic plan for a given project.

While speed can increase value, moving fast can create unnecessary risk.  The best plan is to move deliberately and efficiently using a comprehensive process resulting in a complete, effective, reasonably risk free business proposition.  In this manner, you will identify good deals and convert them into winners for you.

The Real Estate Investor

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3 Responses to “Identifying a Good Deal”

  1. CEA says:

    Identifying a Good Deal | International Residential Real Estate … http://bit.ly/dzhiqS

  2. CEA says:

    Identifying a Good Deal | International Residential Real Estate … http://bit.ly/bMVmYe

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