Practicing Deal Analysis

Practicing Deal Analysis

Houston, TX · Member since 2015 · 57 posts · 8 votes

Hello all,  

I'm a newbie in the Houston, TX area looking to practice deal analysis so I can be a service not only to myself when I start investing but to someone else that's willing to teach in exchange. I don't even know where to start to analyze a deal. For all the experienced investors, where would you start? On the MLS, on Craigslist, etc. I want to be able to determine what's a good deal whenever I come across a property. If my question is too broad, I hope you guys can guide me through. Thanks in advance ladies and gents!

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Kansas City, MO · Member since 2015 · 609 posts · 321 votes
10y

Just my $.02, nothing more. 

I'm still looking for my first property, but am in negotiations with 12 units now (fingers crossed). But, I started an excel spreadsheet like @Zachary Curry said. It started more simple, but then it got more involved, but nothing crazy. Although I don't have 20 years experience to test it out, I feel it is very good.

I basically set up inputs like purchase price, current rent, bank interest rates, etc. Then I found a link that gives average life for Cap-X items. I took average life of each and price of each and average them out for a monthly amount. Then I include things like future From that, I had it calculate down payment, cash on cash return....Pfft, I may as well just show a pic haha. Hopefully it's big enough to see/read

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  • Real Estate Agent · North Miami Beach, FL · Member since 2015 · 55 posts · 16 votes
    10y

    I started compiling a long explanation but what you really need is to create your own tools. Like I have since this question has been presented often. I wrote a simple program using excel as the interface to do exactly what you are asking. It is combined with another program that aggregates the labor costs and remodel costs on a worse case basis dependent on the information you supply. SFH Deal Review On the page click SFH.Review; Open; Enable Macros. Hope this helps.

    And remember when the fisherman were asked have you caught any fish they responded, "Not yet"

    Knowing eventually with time, and the right tools anything is possible. Don't rush into anything and enjoy the process. Good Luck!

  • Houston, TX · Member since 2015 · 57 posts · 8 votes
    10y

    Awesome, thank you @Zachary Curry! I'll definitely look it up! 

  • Investor · Atlanta, GA · Member since 2014 · 378 posts · 82 votes
    10y

    @Broderick Campbell - great post! Here are my 2 cents:

  • Kansas City, MO · Member since 2015 · 609 posts · 321 votes
    10y

    Just my $.02, nothing more. 

    I'm still looking for my first property, but am in negotiations with 12 units now (fingers crossed). But, I started an excel spreadsheet like @Zachary Curry said. It started more simple, but then it got more involved, but nothing crazy. Although I don't have 20 years experience to test it out, I feel it is very good.

    I basically set up inputs like purchase price, current rent, bank interest rates, etc. Then I found a link that gives average life for Cap-X items. I took average life of each and price of each and average them out for a monthly amount. Then I include things like future From that, I had it calculate down payment, cash on cash return....Pfft, I may as well just show a pic haha. Hopefully it's big enough to see/read

  • Investor · Houston, TX · Member since 2014 · 35 posts · 13 votes
    10y

    Well if nothing else, this is a good looking spreadsheet. I'd like one! Did you get your deal? What did the bank say about the numbers? Maybe you can post in a year to let us know how it performed. Good luck on your deal!

    P.S. Cash on Cash is definitely relevant. But I would definitely take a look at your Cap rate on any deal. This looks like a good deal to me.

  • Kansas City, MO · Member since 2015 · 609 posts · 321 votes
    10y

    Thanks, Matt. I'm under contract now, so hopefully everything works out through closing. Everything in that spreadsheet needs scaled about 50% higher though. 

    The bank approved the loan so I guess they liked the numbers! Haha. They wanted a business plan too, I went above and beyond making it professional looking to try and impress them. 

    As far as CAP rate, I don't have it figured in there but I should. I think i can do things to increase rent and possibly decrease expenses. If I can do that, I'm tentatively planning on selling after x amount of years to trade up. Also hoping that they appraise well so I can do some cash out refinancing, but that remains to be seen.

    If you want that spreadsheet, it's reasonably easy to make but I'm also happy to share it. Just let me know

  • Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Dustin Beam:

    As far as CAP rate, I don't have it figured in there but I should. I think i can do things to increase rent and possibly decrease expenses.

    There is no reason to calculate a cap rate on SFR's or even ANY property that you do not have a third party source of verifiable cap rate comps. If you would have and the cap rate is 9% then the hard part is determining the NOI. Once you have that for any similar property then you just divide the NOI by the market cap rate. See how easy the math part is? You would be better to focus on calculating NOI and then maybe looking at NOI per sf, etc.

  • Kansas City, MO · Member since 2015 · 609 posts · 321 votes
    10y

    @Account Closed

    I agree. I'm not totally concerned with its CAP rate now. But I will if/when it comes time to sell.

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