Anatomy of a Deal ~ How to Analyze a Deal in Thirty Seconds

Anatomy of a Deal
From the Down and Dirty to the Nitty-Gritty and
How to Analyze a Deal in Thirty Seconds

Many students get “stuck” somehow when they leave a seminar or finish a home study course. They are unable to go out and make their first deal. I think it is mostly fear – fear that they do not know enough, fear of losing money, and fear of change – even if that change is success. Stories of how others overcome their fear and how deals are actually done can help you work through some of those fears.

How would you like to sit in the co-pilot seat as my partner and I make our way through our newest deal – acquisition, purchase, and rehab of a twelve-unit apartment building? One where we can make hundreds of thousands of dollars in one year?

In this series I am going to take you with me – step by step, as I analyze the deal, locate financing, insurance, work out issues with my partner, and close on the deal. We’ll then go on through emptying out the apartments, renovating them and refilling them with new tenants at a higher rental rate.

In today’s blog I am going to tell you how I got started and how I generated the lead. In subsequent newsletters I will take you through all the details – A to Z as I work my way through the deal.

So sit back, get a cup of coffee, and enjoy the ride.

Time to Get Started finding the deal

I am just wrapping up my renovation on my new primary residence. I like to do no more than one or two deals at a time so I have time to spend with my family, law practice, and students. After all, why be an entrepreneur if I cannot make time for the people in my life and the things I want to do other than work? I make margins of $60,000 - $90,000 in each flip, so it does not take many deals to keep me happy each year.

I do not do large mailing campaigns, telemarketing, billboards or radio advertising. Those things are expensive and time consuming. I find my deals by networking through the people I know and meet. Networking is effective and inexpensive marketing.

I started my networking about a month before my current project will be finished. I have been telling everyone I know that I am looking for a new property to renovate. I have told my neighbors, all the workers at my site, my general contractor, and fellow investors.

I received a call from Neal my general contractor today. He heard about a twelve-unit apartment building down the street from my house. It is being offered at $750,000 and just came on the market. He wanted to know if I wanted to look at it with him as something to do together.

First I have to decide whether to leave the office to look at this deal. My time is valuable and I try not to waste it. So how do I do an initial screening in less than 30 seconds? The answer is my 1% rule©.

I know rents in the neighborhood are $1,100 or so for a two-bedroom apartment in this area. The units rent easily and it is easy to find responsible tenants. I know those facts because I already have rental properties in this neighborhood. The potential rents for all twelve units in the building are approximately $13,100 per month (exact figure will depend on the breakdown of units by number of bedrooms).

Using my 1% rule©, I figure if my monthly rents are 1% of my purchase price I will break even on the building. The resulting figure is also a good approximation of the “retail” price of the property. In this instance the retail price of the building with good tenants at full market rent will be approximately $1,310,000.

I do not pay retail for properties. You shouldn’t either. For a rental property you want at least 20% off retail so you have an equity cushion and good positive cash flow.
Using my 1% rule© the “retail” price for the building of $1,310,000 and a “Bob Diamond” price of $1,048,000 (the 1% rule less 20%).

Since the asking price for this building is $750,000, and the potential retail value is $1,310,000 there is potentially $560,000 in equity in the building. I am definitely interested in the building! Time to go out and see the building!

In my next installment I’ll tell you about the inspection of the building and how we calculated our offer.

Until then…
Awesome Investing!
Bob Diamond
http://bobdiamond.com

Want to know more?

Do you want to make hundreds of thousands of dollars in cash and equity in properties? Do you want to learn from an attorney and ACTIVE investor who will give you all the details and “real” information you need to succeed?
If so, I really am your guy.
Find out more at:
http://bobdiamond.com

You can also hear me live at my next FREE tele-seminar. My staff and I are always producing monthly conference calls that deliver FREE content and actions plans for the novice investor or the seasoned pro! Just get on our newsletter list at:
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