On a recent vacation, I received a somewhat frantic call from my brother-in-law, Mike. He’d just begun investing in residential real estate and often bounces ideas off of me before making a move. This time, Mike wanted to run the numbers on a property he was considering buying and didn’t know how to go about it. I was happy to oblige, letting him know there are lots of tools available for residential investment property analysis. So, I laid out the most popular options and we weighed the pros and cons of each. It’s a common concern for those just getting started, like Mike, so I’ll share the information with you here, too. 

Top Distressed Residential Investment Property Analysis Methods For Getting the Numbers Right

Pros and Cons of the Top Residential Investment Property Analysis Methods 

Whether it’s your first investment in a distressed residential property or your 100th, it’s important to get the numbers right. Every step of the way, whether it’s assessing the property, determining the rehabilitation costs, estimating the after repair value (ARV), or coming up with the list price, requires careful calculations. Each aspect plays a role in the final determination of whether or not it’s worth investing in the property to begin with. There are a lot of tools on the market to help but they aren’t perfect. Here’s some of the most popular options. 

Do-It-Yourself With Spreadsheets

When it comes to assessing the value of a property you can DIY, but it’s going to require a lot of calculations and knowledge. The upside is that spreadsheets are cheap; this is a very low-cost way to go about your calculations. This wasn’t even an option for Mike, but here’s what it entails. 

Identify the necessary repairs. You might need to hire an inspector to walk you through the home to understand what is actually needed and what isn’t for adding value to the property.

Do a detailed analysis of the repair costs. Remember to include local labor and material costs. 

Understand the costs of holding and selling. There are other expenses that have to be calculated including realtor fees, transaction expenses, loan payments, mortgage, insurance, and more. 

Pinpoint the potential after repair value of the house. Pour over the real estate comparables to gauge what homes sell for and how long they stay on the market. You’ll want to be sure that you are comparing apples to apples here. 

This is all before you even make an offer on the property. DIYing it can be daunting even for experienced real estate investors. It’s also why so many, including myself, rely on other methods to evaluate a property.

Real Estate Investing Software 

Distressed residential properties draw a lot of investors and the software industry has responded by offering a slew of programs to help you evaluate different aspects of a deal. Mike liked the idea of using software since he’s a more tech-savvy type. He also liked that these software tools promise to evaluate properties quickly so he could make a decision and act on it in a timely manner. 

A lot of the distressed residential investment property analysis software is relatively inexpensive, running from a low of around $150 to a high of $500 initially. But initially is the key. Often to achieve a complete evaluation of a property you have to purchase additional software that makes the whole exercise much more expensive. 

There are a couple of other downsides to most valuation software programs. More often than not, they aren’t compatible with other programs you may already have. And, many will analyze data you aren’t interested in. For example, Mike doesn’t really care about the holding costs, since he plans to sell the property once the rehab is complete. What’s more, none of them can provide estimates based on the local labor market and materials in that region. 

Online Analysis Tools 

Today several online tools exist to enable Mike to analyze properties, even allowing him to import data from online real estate sites like Zillow. These online tools and mobile apps also help you map out your renovation budget and predict how much you’ll make on the investment. Some try to hook you up with lenders and offer lead generation resources to find distressed properties. 

But, the problem with these services is that they don’t always rely on the best data. If you don’t get a complete picture, it’s impossible to get an accurate valuation for the property. Sure, you may get a ballpark idea of how much the property is worth but when you’re a real estate investor you have to care about the small stuff. You need to act with certainty and, unfortunately, many of the online evaluation tools on the market simply aren’t of a high enough caliber.

Mike was a little dumbfounded when I laid out the pros and cons of the most common methods to analyze a residential real estate property. He knew that he didn’t want to hassle with spreadsheets but just assumed these software or online tool would be spot-on with the renovations costs as well. Fortunately, there is a tool that has been made especially for professional real estate investors to effectively valuate a potential distressed property deal. 

Get An Edge When Analyzing Residential Investment Property 

To prevent Mike from trying every method, wasting time and money, I told him the best thing I ever did was to become a HomeVestors® franchisee so I could access the distressed proprietary valuation software ValueCheck™—a far superior option to anything else I’ve seen over the years. Not only is it intuitive to use, but it’s also comprehensive. You won’t need any add-ons with this software, nor will you have to worry about getting an inaccurate assessment because the rehab costs are analyzed with local materials and labor as the basis. ValueChek™ even lets you compare properties in the neighborhood to get a good idea of your potential list price. 

What’s even greater, HomeVestors® doesn’t leave you to understand everything by yourself. If you have a question about evaluating a property, there’s a built-in messaging system. Your questions can be answered by your Development Agent when you share details of the deal including photographs. 

If you are ready to decrease your uncertainty about your deals, contact HomeVestors® and find out about ValueCheck™ today.


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