If you were told that you would only purchase 1% of the properties that you evaluated, then you might think that real estate investing is not the career choice that you should be making. It sounds time consuming, tedious and more effort than it is worth. But perfecting your process of the evaluation will not only save you a ton of time but it will make you a much better investor. Creating a template or a spreadsheet which contains all of the important information about the property will allow you to complete the evaluation process, or most of it, without ever leaving your office.
The first section is easy to fill out from the MLS listing or whatever listing that you used to find the property. You are including the common but important facts such as square footage, number of bedrooms and bathrooms, any additional features like a garage, car port or swimming pool and so on. I also like to notate the price per square foot for an easy comparison later as well as the subdivision or neighborhood. If I know the details of the area, then I don’t make any more notes but if I am not as familiar with the area, then I will make notes about the surrounding neighborhood.
The next section contains the purchase details and more of the financials for the property. In this area I enter the purchase price, the property taxes, my options for funding the purchase and any other initial fees I think will be associated with the purchase. Those can include renovation estimates, repair costs or just cleanup of the yard and house. Overall, I want this section to provide my total investment in the property before I begin to see a return on my investment in the form of rental income.
Next I evaluate the rental potential of the property. I list each unit separately so that I can evaluate the appropriate rent for the size and in that particular area. I can also make notes about the rental market in the area and how long it is taking to rent units. This is also a good place to notate any added carrying costs that I might feel I would incur while waiting to secure a tenant.
Once I have all of this information compiled in a single document, it is easy to decide if the property meets my criteria for a potentially successful rental investment. I want each of my properties to have a monthly rent that exceeds 2% of the total purchase price of the property. I also expect to have a cash flow of at least $100 per month per unit. I also want to maintain a debt coverage ratio of 1.2% or greater. If the property meets all of these criteria then I am ready to move forward and visit the property in person to be sure that my evaluation is correct. Using this method and getting some advice from a seasoned professional will help you to create your own evaluation system for rental income real estate properties. Visit www.azrealestatewholesale.com to learn more about what the team has to offer you when considering your first investment in real estate.