How to Effectively Evaluate a Real Estate Investment Deal in Baton Rouge
We talk with many people looking to invest in real estate properties in Baton Rouge and the surrounding areas. Some are seasoned pros, while others are still learning the ropes. No matter where you are in the process, evaluating a real estate deal correctly is crucial to success.
Since our business is all about finding great deals, we wanted to share some essential resources on how to evaluate a real estate investment deal effectively. These tips work in any market, whether you’re in Baton Rouge, Louisiana, or anywhere else across the country.
At its core, evaluating a real estate deal is a straightforward process. Whether you’re flipping properties, holding them for rental income, or wholesaling them, the most critical factor is buying at the right price (i.e., not overpaying).
Let’s break it down.
How to Evaluate a Real Estate Deal (For Single-Family Homes)
When analyzing a deal, there are a few key elements you should focus on:
Cost of Repairs – The estimated expenses to get the property back into good condition.
After Repair Value (ARV) – The property's market value after repairs are completed.
Rental Income Potential – If you’re holding the property for rental income, you need to know the potential rent and your debt service (mortgage payment).
Of course, there are other factors to consider, but these three are the essential starting points.
1. Calculate the Cost of Repairs
One of the first things you need to assess is how much it will cost to bring the property up to standard. This could include anything from replacing the roof to installing new flooring, repainting, or remodeling the kitchen.
The best way to get an accurate estimate is to partner with a local contractor who can walk through the property with you and provide a detailed quote. You can then factor these costs into your offer to ensure you’re not overpaying.
2. Determine the After Repair Value (ARV)
The ARV is the price you could sell the property for after completing all necessary repairs and upgrades. This step is where many investors get stuck, but it’s crucial to get it right.
To determine the ARV, look at what similar homes in the same area have sold for in the last few months. Be sure to focus on actual sale prices—not listing prices—as this gives you the most accurate estimate of what the property is worth in today’s market.
Pro tip: If you don’t have experience estimating ARV, reach out to a local Realtor or appraiser. They can help you understand what a property should sell for once it’s in great condition.
3. Buy and Hold for Rental Income
If you plan to hold the property as a rental, your focus should be on cash flow. Start by talking to a mortgage broker or private lender to understand what your monthly mortgage payment will be for the property.
Next, research the rental market to see what similar properties are renting for. You’ll want to ensure that your rent covers the mortgage and leaves room for positive cash flow each month.
When running the numbers, don’t forget to account for additional expenses like property taxes, maintenance, insurance, and property management fees. Be sure to keep some reserves for future repairs or vacancies.
Your offer price should be calculated like this:
Monthly Rent – Monthly Mortgage – Operating Expenses – Taxes & Insurance = Monthly Cash Flow
Making an Offer
Once you’ve analyzed the numbers, it’s time to make an offer. Many of the properties we list are already heavily discounted, which means we often receive multiple offers—sometimes even above the asking price.
If you’re serious about securing a property, determine the maximum amount you’re willing to pay and submit that offer. But remember, the golden rule of real estate is to never overpay. Our deal analysis process is strict to ensure that our buyers, like you, always get incredible deals.
Final Thoughts
We hope this guide has helped sharpen your real estate deal analysis skills. Evaluating a property doesn’t have to be complicated, but it does require a clear understanding of the numbers.
If you have any questions or need more advice, feel free to reach out to us. We’re here to help! And if you’re looking to talk more about analyzing deals, you can join us on the 1st Tuesday of every month at Red Stick Social at 6:30pm where we talk with dozens of other investors about this very process. Look forward to seeing you there!