10 Mistakes to Avoid When Analyzing a Deal

Mistake #1

They take TOO Long. Good deals don’t wait around for indecisive people. Many people “think a deal to death.” One way to lower your anxiety level with a deal is to move forward provisionally (i.e. with a clause of some sort.)

Mistake #2

They trust the seller’s numbers. Even if there are only good intentions, most sellers just aren’t knowledgeable, and they are inherently a bit biased.

Mistake #3

They trust appraisals. An appraisal really isn’t meaningful, unless YOU hired the appraiser, and YOU gave the instructions, and YOU are handing the appraiser the check.

I can influence an appraiser to appraise a “$100,000” house for as little as $80,000 and as high as $120,000 (or more). That’s a 20% variance! That’s a lot to have in a marginal deal. So take any “appraisal” the seller hands you in the spirit that it was intended–as a MARKETING piece!

Mistake #4

They do their math in pencil. The next time you catch yourself thinking it’s okay to “fudge” your numbers a little to make the deal cash flow or the rehab payoff, BEWARE! Some investors have a tendency to “play” with the number a little to make them show a marginal deal is better than it really is.

Mistake #5

They overestimate market rents. This one happens all the time. The way you know what a house will rent for is to do a market rent survey. The rents listed in the paper may or may not be accurate.

Mistake #6

They overestimate “as is” value. So many investors forget that to turn a house in 60 days or less requires the price to be REAL–not pie in the sky. Be conservative in your estimate of value going into the deal. The worst case then is that you make MORE money than you thought you would!

Mistake #7

They get bogged down in process. Use a “Layered” approach.

Mistake #8

They worry about the house on the first layer analysis. On your first pass, you are only concerned about three things:

  1. Why is the seller selling (motivation level)?

  2. Is there any equity?

  3. Would the property cash flow if you held onto it?

Mistake #9

They underestimate the time it will take to flip, fix, fill, or sell. I’ve bought a lot of houses from investors who got stuck with holding costs too much for them to handle. Be careful here.

Mistake #10

They SKIP analysis until the deal falls apart on it’s own. Wishful thinking isn’t pretty.

Bonus Mistake #11

They hide behind analysis when they are AFRAID to act!

By CREOnline Contributor

A content contributor to the original CREOnline.com.