Investors rely on specific criteria to evaluate whether a property is worth purchasing. As a real estate agent working with investors, understanding these criteria can help you bring relevant opportunities to your clients and establish yourself as a knowledgeable, reliable partner.
Key Principles for Evaluating a Property
Profit Is Made When Buying, Not Selling
Investors prioritize the purchase price over market conditions because profitability is often determined at the point of acquisition. They aim to buy properties at a discount, ensuring enough margin for a successful outcome.ARV (After Repair Value)
Investors calculate the estimated value of the property after renovations are complete. This figure helps determine the property's profitability once improvements are made.Repair Costs
Accurate repair estimates are crucial, especially for fix-and-flip investors. Many include a buffer for unexpected issues (e.g., structural damage or hidden defects) to ensure the project stays within budget.Cash Flow
For buy-and-hold investors, the property’s ability to generate monthly cash flow after expenses (e.g., mortgage, taxes, maintenance) is often a deciding factor.Time Sensitivity
Speed is essential, especially in competitive markets. Investors rely on agents to provide timely access to properties and detailed insights to act quickly.
Learn how investors evaluate properties and what you can do to support them
Metrics Used by Investors
Investors often use formulas or rules of thumb to determine whether a property aligns with their goals. While these vary by strategy and market, some common examples include:
70% Rule (Fix and Flip)
Fix-and-flip investors aim to pay no more than 70% of the ARV minus repair costs.Example: If the ARV is $300,000 and repairs will cost $50,000, they’d aim to pay no more than $160,000.
Cash-on-Cash Return (Buy and Hold)
Measures the annual cash flow generated by the property compared to the initial investment.Cap Rate (Buy and Hold)
Compares net operating income (NOI) to the purchase price. A higher cap rate often indicates better returns, though acceptable rates vary by market.Assignment Fee (Wholesale)
Wholesalers calculate their profit by subtracting the property’s purchase price from the amount they can assign the contract for to another investor.
How Privy Agents Can Add Value
Ask the Right Questions
What type of investor are you (e.g., fix and flip, buy and hold, wholesale)?
What metrics or benchmarks define a good deal for you (e.g., ARV, cash flow)?
Are there specific property types or neighborhoods you’re targeting?
Leverage Privy’s Tools
Use Privy to automate deal analysis and identify properties that meet your client’s criteria.
Set alerts to notify your clients about new opportunities as soon as they hit the market.
Access detailed property data, including comps, to give your clients the necessary insights.
Provide Market Expertise
Help investors understand local market trends that could impact their strategy, such as rental demand for buy-and-hold properties or typical profit margins for fix-and-flip deals.
Offer insights into neighborhoods poised for growth, distressed property opportunities, and zoning regulations.
Build a Network of Resources
Connect your clients with trusted contractors, property managers, and lenders to streamline their investment process.
Develop relationships with wholesalers and auction houses to uncover off-market deals.
Important Notes for Agents
Not Every Deal Fits Every Investor: Each investor has unique goals, so tailor your approach to their specific needs.
Stay Updated on Trends: Market conditions, like interest rates or local appreciation patterns, can shift what constitutes a “good deal.”
Be Prepared for Speed: Use Privy’s tools to stay ahead of the competition and provide timely insights to your clients.
By understanding how investors evaluate properties and using tools like Privy to streamline the process, you can become a trusted partner in their success. Focus on asking the right questions, delivering tailored opportunities, and leveraging technology to support their decision-making.
Want to learn more? Register for one of our Live Training sessions or explore our Learning Center for additional resources!