How to Analyze Your Real Estate Deal (& Why You’re the Only One that Can)

Kid with magnifying glass

I can’t analyze your deal for you.

It’s not even because it takes a ton of time to do properly (which it does, by the way!). It’s also not because you sent me absolutely no information that is useful in the analysis (although, that is often the case).

I can tell you if the numbers make sense. I can ask you if you’ve considered a few potential risks. But, ultimately there is only one person who can really figure out if the deal is good for you or not … and that is you.

Here’s an example of an email I received this week with personal details omitted:

“Hi Julie, I am 1/2-way through your wonderful book! You have such an earthy, non-slick, trustworthy personality. I have a question: We are just about to sign a commitment letter with a bank on our first investment/property in one city. We live in another. We paid $573,000 for a 3 units with 25% down. $2900/month rental income. Are we crazy?”

When you just look at the numbers on this deal, it’s not that great. These folks are likely hiring property management as they don’t live in the same city, so that will reduce their net income as well. Before you even consider maintenance, which will definitely be costly as it’s almost 100 years old, it will likely not cashflow much at all.

Does that make her crazy? Should she look for a better deal?

I have no idea. It could be the perfect deal for her or it could be a terrible idea.

To help her figure it out, I would need to know more about her goals, resources and risk tolerance. For example:

  • Why she is investing in real estate in the first place. What does she need this deal to do for her and her family?
  • Why she chose that city. If it’s because, in the future, they plan to retire or send their kids to University there, this might be perfect. If it’s because they go there on a regular basis for other reasons then it’s not a bad idea. If she chose that city because it was more profitable than the city she lives in currently, I probably would have picked a different location.
  • What resources does she have to work with? My guess is that this property is not a legal 3 unit property. At best it is probably is legally allowed 2 units. Is she financially able to handle the risks that come with an illegal suite? If it won’t kill them financially to handle this issue or maybe she has connections to a contractor who can help make it legal for a lower cost, then this might not be a big issue.
  • What other options were considered and why were they eliminated?

Then, once I had that information, we’d have to dive into all the property expenses, expected maintenance, and, of course rent and income. Even with that information I still couldn’t tell you for sure that it’s a good deal because I would need to know all about the area, the comparable deals that have been done lately, the layout of the property, the target tenant type and what options exist for different exit strategies from the property.

It’s a lot to cover … and if you haven’t already read More than Cashflow, I highly recommend you start there. It’s the absolute best real estate investing education you can get for less than $20!

But over the last six years we’ve covered a lot to help you in our Rev N You with Real Estate newsletters to help you choose where to invest and how to analyze your real estate deal. There are a lot of things to consider and I just want you to make the best decision possible for you. Below we’ve highlighted some of the most read articles on choosing a market and analyzing your real estate deal to help you.

There’s a lot more to cover but that should keep you busy for the rest of the summer and fall. :) Happy analyzing. And remember, you are only doing a good deal if it moves you closer to the ideal day or ideal life you want to live. Numbers are only a small part of what you need to consider before you buy a new investment property.

What Market Should I Invest In?

One of the biggest reasons people lose money on renovation projects, especially flips has almost nothing to do with the actual renovation process at all. It has everything to do with the selection of property and it’s location. Here’s what you need to know about the price you’re paying and the cost of the renovations you’re about to do:  The Neighbourhood Price Ceiling and Why It’s Critical to Understand.

One of the biggest stumbling blocks for real estate investors (new and experienced) is where to invest. What market will be the ideal location for the next investment property purchase? Read this post to learn exactly How to Choose a Great Real Estate Investment Market.

Think location doesn’t matter in real estate investing? Location impacts the rents you can get, the tenants you attract, and the problems you can encounter. It also impacts the appreciation of your property and the opportunities you may have in the future. Real Estate Investing Is Still About Location, Location, Location.

A couple of days ago my Twitter feed was alive with talk of several real estate related subjects that caught my attention: Confirmation of Canada’s Housing Bubble. It doesn’t matter where we are in the cycle, that headline pops up so do you really know what the Driving Factors Behind the Real Estate Market?

Oh glorious summer! It has arrived early or at least a taste of it has arrived early. I’m getting out to enjoy it as much as I can. But I’m still finding time to keep an eye out for properties that fit our model. In fact, I looked at one yesterday and we’re running the numbers to see if we want to make an offer. How do I know if I want to make an offer? Here is a  Simple Model for Buying Rental Properties.

We get the short end of the data stick in Canada when it comes to residential real estate information. I’ve spent many hours drooling over the information you can gather on Zillow, Trulia and other US real estate sites. But things are improving for Canadians and here’s a few new resources you might like to check out: Shopping for a New Construction Home? Market Research Just Got a Little Easier.

How To Analyze Your Real Estate Deal:

There’s a lot involved in evaluating properties for their cashflow potential and a simple rule of thumb only gives you a way to eliminate bad deals quickly, but here’s one little rule of thumb we use. Learn how to  Evaluate Properties in 60 Seconds or Less.

You need a lot more than a computer to analyze real estate deals. Read how: How to Analyze Real Estate Deals

If you think real estate is risky or you’re worried about certain risks and how those will impact your investment, then it’s time to understand just How to Analyze Risks in  Real Estate Deals.


Item added to cart.
0 items - $0.00