How To Analyze An Investment Property
How do you know if you have a good investment deal? Knowing your numbers is a great place to start! Don't let uncertainty of not knowing how to analyze a real estate investment deal keep you from getting started on your investment journey.
When I work with clients, I often tell them, "I'm incentivized to do a good job for you to pick a great property, because if you're going to make money on this property, it's going to help you to buy more." However, analysis paralysis is real, so we have to find a way to quickly and efficiently look at a deal and decide if it's worth spending more time, or moving onto the next deal.
Too many times investors are sitting back and waiting for the "homerun" deal. The deal of a lifetime. Yet if you're looking to build a portfolio of many properties, you need to have some singles, doubles, and triples in your portfolio too! Waiting to only move on that homerun is going to set you back from getting started, learning lessons, overcoming challenges, that are going to help you earn your degree in Real Estate Investing.
To get started analyzing deals, you need to start with a good deal calculator. If you haven't checked out the one we have on our REL Freedom site, do that first. We have a few different options depending on the type of deal you're looking for, whether it's a typical investment, a BRRRR or a short-term rental.
From there, go find some properties and start plugging numbers into the calculator. Having MLS access is really helpful, because the MLS has much of the information in one spot for you to plug in as many numbers as you can right out of the gate. If you don't have MLS access, reach out to a trusted real estate agent in your market (us if your in Minnesota) and they can get you set up on a search whether it's single-family properties, multi-family properties, or even commercial listings.
In your calculator, you'll plug in things like purchase price, current or potential income, expenses (including taxes, insurance, utilities), as well as some assumptions around mortgage rates and more. I know it may not make sense now, but don't spend too much time scrutinizing over every number right away. Your main objective early on is simply to decide whether it's worth spending more time on or not. You're not closing on the property today, so don't fret too much. You'll have plenty of time to do due diligence as you move through the process later and tighten up your numbers and projections.
If it doesn't come close to the numbers you want to hit, move onto the next one. The faster you move from deal to deal, the more quickly you'll learn to understand what a good deal could look like. You'll start to recognize areas where you tend to see better numbers than others. You may find pockets of opportunity that you can dig into deeper, or price points or types of properties where the numbers make more sense to you.
These future conclusions will only come after you've looked at a lot of deals and run them through your calculator. So how do you get there? Daily or weekly practice. Set a goal to analyze a certain number of deals each day or week. Pretty quickly you'll realize how easy it is and you'll sort out which deals are worth spending more time on.
Last year, we calculated that as a team, we analyzed over 3,500 deals. Yet we started just like everyone else....with our first deal that felt awkward and clunky to analyze. You have to start somewhere, so do it today.
Watch the video above as I go in detail and analyze a couple of deals. See how we do it. Then go to it yourself. If you ever get stuck and you want help, raise your hand! We're here to help you out. Don't be a stranger and reach out to us. We would love to help you gain clarity throughout the process so that you can get your first (or next) property.
