Getting Your First Deal: Which Direction Should You Take? Part I

Are you working on your first deal? Have you come across an opportunity and you just aren’t quite sure which direction to go in? This can be a confusing and frustrating situation if you have a property with a variety of potentials. It’s enough to make you crazy! This isn’t something to take lightly either-really look at all of your options. Different options give different outcomes, which can alter the money you have the potential to make.

Let’s take a look at this situation. Say you have a piece of property that contains an older home, one with great restoration resale value (in fact it is what is wanted in your area right now). In addition, this home also has 3 rental units. Now the seller may be willing to finance a good portion of this, so you may be in good limits with this. The big dilemma you now face is-do you go ahead and develop it all the way, putting five units on the property. Or, do you keep it as is, and restore the original house?

This is a great situation to be in! One of the first things you have to worry about is how this property is being calculated. Maybe one way to look at it is to think of how much it would be worth if somebody were to go and develop this thing and put five units on it. How much (maybe in terms of percentage) would they be looking to make on the overall?

What you need to realize about this situation is that when you get up to five units, you will automatically be placed onto the commercial standpoint. Those market values are calculated based on the income as opposed to basing it off similar properties. Essentially, if you are able to get an idea of what the market rents for (even if it is just an estimate, or ballpark figure), you could then have a figure for what the operating number would be (the income less the expenses).

Now if you are looking at doing them as condos and selling them from there, then you just need to look at the per unit value. And really, this should be fairly easy! All you’ll have to do is get a broker form the area to determine that value.

Once you have broker determine your value, you are on your way!