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Real Estate Valuation and Analysis for Investors

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Real Estate Investment Evaluation is Both Quantitative and Qualitative
I was taking a look at a potential investment the other day. It was a sprawling four unit multi-family property that was being occupied in its entirety the owner, who had been there for thirty years. The owner was an eclectic academic and there was every manner of bric-a-brac and antique scattered throughout the place. The place wasn’t sub-divided properly. Carpet needed to be replaced and floors repaired. The shifting foundation had bulged the floor in places, and had created large cracks that ran up and down various walls.

I toured the place with some friends of mine – a couple that was interested in getting into real estate. They wrote the place off from the moment they walked in the door. But when I saw those bulges and cracks I saw one thing: money. Foundation problems scare off most investors, which decreases competition and can soften up pricing.

But how to evaluate a deal like this? Or any deal, for that matter? Personally, I break the considerations down into two categories:

• Quantitative: How do I expect the property to perform as an investment? For this part I can whip out my calculator, or my spreadsheet, or my evaluation software and run some numbers.

• Qualitative: I have to ask myself “can I pull it off?” If you’re like the vast majority of real estate investors, then you’re a part-timer. That means you’re going to have to tackle this project on top of your “day job” and manage it afterwards. This part of the analysis will take some soul searching; a calculator isn’t going to help you here.

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