There are multiple steps to analyzing a rental property, and you need to know 4 essential pieces of information.
Step 1: Apply Filters
The first thing you do is filter out the stuff you don't want from the stuff that might work. Look at things like the 1% rule to see if rents are high enough.
Also, you can look at neighborhood, price range, number of units, etc to decide if it fits your criteria.
Step 2: Quick Numbers
Now it's time to run some super quick number to see if it's worth your time. You don't want to spend your time and waste your Realtor's time when you could easily crunch some numbers and see if it's even close.
In the video above, I spend 5-10 minutes to see if the deal is something I'd consider.
Remember, you need to apply your own criteria. If I like an 11% return, that works for me. Your goal may be 8% or 15% or something else entirely different.
Don't forget, you need these 4 pieces of information to be successful:
After Repair Value
This is the value of the property after all repairs are made. I just made an assumption that if I put $15k of work in, I'd get $10k in value.
Not a good ROI, but I wanted to be conservative and see where it played out. The real ARV would have to be established by doing a CMA or asking your real estate agent.
Fair Market Rents
What rents are you receiving vs what rents could it receive?
The fair market rent is what the unit should get if it was listed today at a competitive rate. You should also look and see if there is room to grow that if any upgrades are done.
I used rentometer to get a real quick analysis of the area. It's not perfect, but it does aggregate a ton of information and can give you a super quick working number.
The operating budget is the cost to maintain, operate, and repair your buildings. It includes things such as taxes, insurance, repairs and maintenance, utilities, etc.
I assumed 50% for my quick analysis, but that is just a swag. It's best to know the market and get real numbers.
The cost to bring your units up to the standard you want them to be.
I made an assumption of $5,000 per floor which might cover paint and some flooring. If you want to do a full rehab it could easily push $10k+ per unit.
Step 3: Tour the Property
Now it's time to go look at the property.
You should pay attention to anything that can affect your numbers. Is your initial rehab estimate within range or is it way off? Are the rents you assumed reasonable or does the condition warrant higher or lower rents?
Is there anything specific that should make your operating costs or ARV be different?
Step 4: Refine Your Numbers
Now that you've toured the property, input your adjusted numbers into the calculator.
Then, play with the offer price until the returns meet your goals. Once you have an offer price that achieves your goals, that is your number.
Step 5: Make an Offer
Now it's time to contact your agent and make an offer!
Before making an offer, make sure you've spent the time to truly refine the numbers and get the best possible offer. In a hot market, really low-ball offers are rarely considered.