We speak with many investors evaluating real estate investment deals in Dallas, Fort Worth, Texas, and surrounding areas. Some know what they’re doing when evaluating real estate investment deals in Dallas and Fort Worth… and some are still in the learning process.
But, since our entire business is finding great deals at deep discounts… and often passing those deals onto real estate investors like you… I thought it would be great to share with you some resources to evaluate real estate investment deals. This works in any market, including Dallas, Fort Worth, surrounding areas, Texas, and other states.
When you boil it down… evaluating a real estate investment deal is a pretty simple process. If you’re looking to buy real estate as an investment, wholesale properties, hold them for rent… whatever, one of the most important parts is “buying it right” (i.e. – not overpaying).
So let’s dive in.
Evaluating Real Estate Investment Deals In Dallas, Fort Worth
What Goes Into Evaluating A Real Estate Deal – (for single-family homes)
There are just a few main elements when you’re evaluating a deal.
- Cost of repairs needed to get it back up to good condition based on your exit strategy i.e. Fix-N-Flip or hold.
- The after-repair value (ARV) of the property (what it’s worth and what can it sell for today once it’s fixed up)
- If you’re going to buy and hold for a rental… you need to know what you can rent it for and what your “debt service” (mortgage payment) will be. Knowing this is critical to ensure you’re buying a property that cash flows each month.
There are other things you can (and should) look at, too… but those 3 are the main important things to look at first.
Cost of Repairs
One thing you must do when you are looking at a property is to determine how much it’ll cost you to fix it up. Based on your exit strategy i.e. buy & hold or flip, what will it take to put it in great shape? In other words, the cost of repairs. This could be a new roof if it needs it, foundation adjustment, carpet, paint, a new kitchen, appliances, yard, or maybe even more.
To get a good estimate of the cost of repairs, the best advice is to get to know a local contractor or two in your area and have them walk through the properties with you the first few times… have them quote out the repair cost… and build that into your offer. If you are investing in the North Texas market, feel free to reach out to TMC Property Solutions for a recommendation.
Here’s a cool free tool for helping you evaluate your repair costs and prepare a Private Lender package called RehabValuator. Check it out and see what you think… it’s free.
After Repair Value (ARV)
This is simple, but many investors get stuck on this part. This is essentially what you could sell the property for today… after you repaired it and brought it up to a great condition. This is determined by finding out what other similar houses in the same area are selling for. NOTE: Don’t look at the “Listing” price… look at what houses similar to yours have SOLD for in the past 3 – 6 months. This helps you determine how much you could sell that house for if you had to… right now. You never want to overpay to a point where you can’t sell it for a profit in the next three months.
How do you determine the true value? Well, the best comps come from the Multiple Listing Service (MLS), accessible only to realtors and appraisers. If you do not have access to MLS, talk to a Realtor that you know… or an appraiser. If you don’t know one… call a few today… tell them you have a property that you’re potentially selling shortly… and ask them what they think it should sell for. The problem here is you are controlled by the realtor’s time and when they are available to pull comps for you.
If you invest in AZ, FL, IL, MO, and TX, you can pull your own MLS comps using a subscription service called Propelio. Propelio does not cover these states completely; however, they cover many larger metroplex areas. Watch the DEMO to learn more about the areas covered. This is the preferred tool we use every day, and we recommend you use it as well. They don’t give you access to MLS. However, they pull comps data from MLS, and the system instantly presents the COMPS to you. This is a “MUST-HAVE” tool for your REI business. Many new investors make the mistake of relying on free comps tools to save money that are only “estimated values,” and they get themselves in trouble. There is no need to risk that today when you have options for a minimum investment in Propelio.
Buy And Hold Properties as Rentals
So, you’re going to buy and hold properties for rental? Great! You don’t need to worry about what it’ll sell for immediately. You need to know if it’ll pencil out on a month-to-month basis. This is called cash flow.
So, talk to a mortgage broker (or a private lender) and determine the monthly mortgage payment for that property.
Then find out what you can rent the property out for every month.
Then, you work backward… and find out at what purchase price your mortgage payment will be low enough so you can make the monthly cash flow you need to make on the property. Be sure to figure out other expenses, like property taxes, maintenance/repairs expenses, property management fees, and keeping money in reserves for future repairs and vacancies, typically 10-12%.
So, your offer price here should be:
Monthly Mortgage Payment – Monthly Rents – Operating Expenses – Taxes / Insurance – Monthly Cash Flow = Offer
Simple enough, right?
The cool thing is, the more you bring into the deal in cash… the lower your mortgage will be.
Making An Offer That Gets Accepted
We’ve been talking about how to look at the numbers and analyze a real estate deal up to this point. What’s next?
From there, make an offer. The properties we tell you about will often be so deeply discounted that we get multiple offers… often above our asking price, so we recommend you move FAST if interested.
So, if you want a property… find out the bare max you could buy at… and offer that. Otherwise, you may lose the deal because someone else will likely make an offer. IMPORTANT – You MUST do your due diligence and be comfortable with the price and offer. Don’t make the offer just because you feel pressured. Many wholesalers will try to get you to move too quickly.
That said, the golden rule in real estate is never to overpay for a property. That’s why our deal analyzing criteria are so strict… and why our buyers (like you) get such great deals.
Other things to consider when making an offer where there may be multiple offers being considered to consider increasing your earnest money deposit, shortening the Option period, and closing FAST as long as you are in a position to do so.
I hope this little tutorial has helped you sharpen your real estate deal analyzing skills… and we look forward to working with you soon.
If you have any questions at all… don’t hesitate to contact us anytime for anything.
If you’re looking to get started with House Flipping in the Dallas, Fort Worth area, we could help you out. We buy properties in Dallas and Fort Worth, TX, and would be happy to see if a property might work for your flipping needs. Just click here and enter your information or pick up the phone and call (817) 550-5069 Opt# 8 TODAY!
If we can’t help you, we probably know someone that can, so give us a call today.
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P.S. Are you an active real estate investor in Texas? Come network, learn, & do more deals by joining our West DFW REI Group, the “Watering Hole” for North Texas Real Estate Investors. We also have an “Online Only” membership if you’re not local to Fort Worth.
Feel free to reach out HERE if we can help you.
To Your Success!
Tim