How to Analyze Real Estate Deals Like a Pro

If you can’t run the numbers, you aren’t an investor, you are just guessing. Being a deal maker means knowing exactly what a property is worth and how much you can afford to pay for it.

The Holy Grail: ARV

The most important number is the After-Repair Value (ARV). This is what the house will be worth once you finish the renovations. If you get this wrong, the whole deal falls apart.

The best way to find the ARV is to work with an investor-friendly real estate agent. They can run a Comparative Market Analysis (CMA) to show you what similar houses nearby have sold for recently. If you don’t have an agent, use tools like PropStream, Zillow, or Redfin to gather as much data as you can.

The Rules of Thumb

These aren’t laws, but they are great guidelines to keep you safe when you are starting out:

1. The 70 Percent Rule: For flips, you shouldn’t pay more than 70 percent of the ARV minus the repair costs. If a house is worth 100k and needs 20k in repairs, your max offer is 50k.
2. The 1 Percent Rule: For rentals, the monthly rent should be at least 1 percent of your total all-in cost. If you spent 70k total, you need at least 700 dollars a month in rent.

Cash-on-Cash Return

This metric tells you how hard your money is working for you. It is your annual cash flow divided by the total cash you invested. If you put 25k into a deal and it makes 2,500 dollars a year, that is a 10 percent cash-on-cash return.

The Reality of Cash Flow

A lot of new investors make a huge mistake here. They think cash flow is just Rent minus Mortgage. That is wrong. You have to account for:

• Maintenance (5%): Things will break.
• Capital Expenses (10%): Big items like the roof or HVAC will eventually need replacing.
• Vacancy (5%): The house won’t be occupied 100 percent of the time.
• Property Management (10%): Even if you do it yourself, your time has value.

Once you subtract all of those, you have your true net cash flow.

Your Max Allowable Offer (MAO)

The MAO is your stop sign. It is the absolute maximum you can pay for a property while still hitting your profit goals. Once you hit that number, walk away. Don’t let your emotions get in the way of the math.

Practice running the numbers on one deal a week. The more you do it, the better you will get at spotting a winner.

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