Several of our new users have written, “FinestExpert.com looks like a great tool, but how do I use it?” Related comments were, “I can see it does a lot of great things, but where do I start?” I guess I have to apologize, it is not as obvious as we thought it was.
Let’s take a little time and share ways that we find work well - a "How to use FinestExpert.com". The most natural way for me to think about FinestExpert.com is in three stages: Searching, Mapping, Analyzing. Naturally these overlap, but this is a good starting point for discussion. Today, we’ll just hit searching. Next Tuesday we will discuss how to get the most out of the mapping system. And then next Thursday we’ll discuss the expanded property analysis.
Searching – FinestExpert was designed to save you, the investor / homebuyer, from hours of the drudgery of number crunching by pre-analyzing all properties for you. FinestExpert allows you to search by the financial criteria of the property at the outset (instead of starting in a limited geographic region using only a specific price range, and then grunting through the analysis manually, cut-and-paste into Excel, or via some other non-integrated system).
The search options as shown on the home page show the three primary components of your property search, by the financial, property, and location (i.e. geographic) characteristics.
The most common financial search criteria are by price discount and cash-on-cash return. Consequently, these are provided directly without requiring you to use the “+ More” button which expands the available criteria.
The price discount is equivalent to the question, “How much equity is in the property?” FinestExpert uses the prices of all properties to determine a property’s estimated value and then compares the actual asking value to the estimated value to determine discount. We realize there are several significant assumptions (which have to be made by every automated system). We have to assume all properties are in equally average shape. When you inspect a property, you may find anything from a beater foreclosure to a model perfect home. You will have to make some mental adjustments for properties in such cases. It is a fair guess that if you find a home listed substantially below market that it likely needs more TLC.
I like to use a 15 – 50% range for price discount. At the low end, you know that it is most likely a well priced home (even if it needs more repairs). At the high end, you eliminate some of the false deals are improperly reported (or that people put out as teasers to sucker you in).
The cash-on-cash return tells you, after all expected expenses (including vacancies), what kind of return on your money you would be making in the first year. If you are new to real estate investing, you can think of this as a way of comparing how much interest a bank would be paying you on the same amount of money that you are investing in the property.. Again, there are certain assumptions the system must make. In the current credit environment, investors are expected to put 25% down on the property (as well as usually paying higher points on their loan). This and all the other factors will be visible in the property report page (to be discussed next Thursday).
I like to use an 8% minimum for the cash-on-cash return as it provides a nice risk adjusted return as well as some extra cushion in case unexpected expenses might occur. You may find the need to adjust the rate up or down if you have too many or too few opportunities to choose from.
THAT IS IT – That is all you really need to get started.
In fact, rather than information overload and detailing every last possibility, let’s leave the discussion here for now. But, before you go, can you do two small favors for me?
- Would you tell me what you think?
- Can you tweet this, tell others, and ask them what they think to?
Looking forward to helping everyone get the most out of their real estate investing.
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