Every investor is going to develop their opinion of what is or is not a good deal. Generally what most investors consider an excellent deal, whether they are buying houses to rent or sell, is a property in a marketable area that they can acquire for between 65-75% of the ARV (After Repair Value) minus the cost of the repairs the property will need. This simple formula ensures that after all closing costs, repairs, and debt servicing, there will remain approximately 20% equity in the property. If an investor can capture this equity several times per year, then it’s a great business to be involved in. If a landlord can start out with an 80% LTV (Loan to Value), then it’s a fantastic head start to positive cash flow and paying down the mortgage and owning the property free and clear.
DOM (Days on Market) is a great indicator to judge how long you may have the property on the market after you complete the repairs. Every real estate agent has access to the MLS and this information. It’s a good practice to look at all of the comparable properties in the area that have sold or rented in the last six months to see how long they were on the market. This way you can easily factor the estimated financing costs incurred by the property being vacant while you market it for sale or rent. Expect to pay more for areas with a lower DOM. It’s better to turn 4 deals per year and make $20,000 per transaction than wait all year for the home run that could make you $50,000! The same policy goes for landlords; a lot of the time it’s wise to pay more for a property in a desirable area that you never have to worry about finding a tenant for.