First-Time Investor: How are you analyzing deals in today's tight market?

Real Estate Investing
1

I’ve been lurking on the CREOnline forums for a while, absorbing all the incredible wisdom here, and I’m finally getting ready to take the plunge on my first rental property. I’m currently looking at a small duplex as a potential house-hack.

Given where interest rates and property values are sitting, the cash flow math is looking a bit tight. I’d love to get some advice from the veterans here:

  • What is your absolute go-to metric when analyzing a deal today? Are you strictly sticking to cash-on-cash return, or are you prioritizing debt service coverage ratio (DSCR) to secure financing?

  • What percentages are you realistically budgeting for capex and maintenance buffers in your spreadsheets right now?

  • Any tips on pitching seller financing to a listing agent who might not be familiar with creative deal structures?

2

I think being conservative with your numbers is the best approach right now. If a deal still makes sense after accounting for repairs, maintenance, and unexpected expenses, it is probably worth considering. There is nothing wrong with waiting for the right opportunity instead of rushing into a purchase. Best of luck with your first investment!

3

Don Wede is the founder and owner of Heartland Funding Inc. He has been investing in real estate since 1985 and has decades of experience buying houses, managing rentals, and working with distressed properties.

1. What metric should I use when analyzing a rental property?

Look at both cash-on-cash return and DSCR. The property should cover its debt and still provide a reasonable return on your invested cash.

2. How much should I budget for maintenance and capital expenses?

Set aside 5 to 10 percent of the rent for maintenance and another 5 to 10 percent for major future repairs.

3. How should I propose seller financing?

Keep the offer simple. Explain the down payment, monthly payment, interest rate, and seller protection, then have an attorney review the documents.

4. What is the most important rule for a first rental property?

Do not depend on appreciation. The property should work using realistic rent, expense, vacancy, and repair estimates from the beginning.