Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

How To Analyze A Deal: The Three-Step Process

Written by Paul Esajian

Once a lead has been acquired, it is imperative that you take action as soon as possible. However, you must know how to analyze a deal correctly for it to help your business. Speed of implementation is critical at this moment, as deals remain available for a finite period of time. For this reason, it is important to start the three-step deal evaluation process as soon as a lead has been determined.

Your first priority should be to initiate contact with the prospective seller and determine the level of their motivation. In a short, 10-minute phone call, gain as much information as you can about the property. Ask the following questions:

  • Why does the lead want to sell the property?
  • What is the rock bottom price the lead will sell the property for?
  • What is the estimated repair cost?
  • What mortgages or liens does the seller owe on the property?
  • What is the estimated value of the property?

While inquiring about the property, simultaneously conduct research on a trusted valuation website like Zillow or Trulia. We recommend having two screens open to preform adequate cross checks of the information the seller is providing you with. If the numbers work for your particular goal, push for an immediate appointment to meet with the seller.

The second step in the how to analyze a deal process, known as the desktop analysis, requires you to conduct more in-depth research on the subject property. This includes looking at the property card in county records, local MLS comparables and other trusted valuation sites. These three databases should provide you with everything you need to know about the property before you visit the physical lot. When looking at comparables, be sure to target the following houses:

  • Within a ½-mile radius
  • Within the last six months
  • Similar style of home with a similar square footage
  • About the same number of bedrooms and bathrooms

After a sufficient amount of data has been collected, create packets with the relative information so that it may be presented to the seller. Three packets should be made. They are as follows:

  • A Buying Appointment Folder: This folder will contain all the necessary paperwork to sign a contract with the seller.
  • A Comps Package: The Comps Package will contain documents you will use to help determine your offer when you meet with the seller at the property.
  • A Short Sale Buying Appointment Add-On Folder: Just in case it has to be a short sale.

After all your research has been put into presentation form, you are ready to move on to step three, meeting the seller in person. This is the most important step in the how to analyze a deal process.

En route to the subject property, drive by the comps you previously researched to determine any inconsistencies. Take note of how they may affect your initial offer and adjust it accordingly.

Once you arrive at your meeting, it is important to establish a rapport with the seller. Real estate is a business of relationships, the better they are, the more success you will have.

Proceed with evaluating the property to make sure it is “as-advertised,” keeping in mind the relationship you are currently building. Walk the property with the seller and look at everything! Assuming everything looks good, adjust your final offer one more time so that it includes everything up to this point.

Once you feel comfortable in making an offer, present the seller with the packets you created earlier, along with your offer. Doing so will provide him with irrefutable evidence that your offer is fair for both parties.