Advances in technology have changed nearly every industry —from the way we consume media to the way we find and research real estate deals. Yet, the way we perform our due diligence (whether online or in the “real world”) on potential real estate deals hasn’t changed much. We can still apply some of our traditional vetting tactics in this fast-paced online world.
So whether you’re doing it the old-fashioned way or scoping deals from the comfort of your living room online, here are a few ways you should consider vetting the deal:
#1. Do Your Research
Traditionally, researching the property’s location and the surrounding community has been one of the most vital steps in evaluating a real estate deal. This still applies to online real estate deals —and, thanks to technology, much of this research can be done online.
Want to learn more about the neighborhood? Apps and websites like HomeFacts (for information about the safety of a neighborhood), GreatSchools Finder (for local school information), Dwellr (for Census Bureau data), and AroundMe (for finding restaurants, coffee shops, etc.) can give you an overview of the location.
Other important factors to consider are the job market, access to transportation and local area amenities. Of course, if you’re planning on making significant changes to a property, you’ll also want to consider community zoning, covenants and restrictions.
#2. Crunch the Numbers
There are several different ways that real estate investors have historically determined whether or not a prospective property was financially a good deal. For flippers, one way to determine this is by looking at the ARV (After Repair Value) and applying the 70% rule —which still applies to an online real estate deal.
The ARV looks at the value of the property after all repairs are made. It is calculated by looking at comparable properties to find an estimate of value and then subtracting costs such as repair and renovation costs, closing costs, carrying costs, financing costs, and others. The 70% rule states that you shouldn’t pay more than 70% of the ARV for the property in order for it to be a “good deal.”
Of course, each investor has a different formula that they use to determine if a property is financially the right one for them. If they’re holding the property as a rental, for example, rental rates, local vacancy rates and cost of management are just a few of the items that would need to be considered.
#3. Get Opinions
Whether you’re just starting out or have been investing in real estate for years, getting a second opinion never hurts. If you’re flipping the property, for example, do you really know the cost of repairs? Get a second (or third) opinion by requesting quotes from general contractors. If you’re holding the property as a rental, do you know the average vacancy rates in the area? Or, the real cost of management? Getting the opinion of a local property manager could be invaluable.
Similarly, any investor can gain an advantage by having third parties perform inspections, appraisals, and the like on any potential property investment. In an online real estate deal, these reports are often already completed and can be provided to interested parties/investors.
#4. Trust Your Gut
As with all investments, trust you gut. You are the best judge of your abilities and goals — and whether or not a particular investment is the right deal for you.
Pre-Vetted Deals at Patch of Land