Stuck on analyzing deals

14 Replies

Hi ya'll! My name is Josh. I recently retired medically from law enforcement out here in California. I just got my real estate license and have been heavily reading about building cash flow through multifamily properties. I'm working with 200k of my own money and would like to capitalize on that. I was thinking of a system something like flip, flip, flip, acquire a multifamily rental, flip, flip flip, acquire etc. I have a couple of great mentors I grew up with that are doing great our here with flips and rentals and I'm actually on one of their teams for the retail side. However, I'm finding it difficult to gather their time and learn how to analyze deals. I'm getting potentials deals sent to me from other agents and MLS alerts I have set up for my specific criteria, but I get stuck on analyzing a deal. For example, I am looking into a triplex here in California. The asking price is 579K (I know I don't want it for that). GSI is $39,600, NOI is $27,100 ($12,500 annual expenses according to the listing). I tried using the 50% rule, but I must be doing something wrong because according to me I would have $,1650 left to pay my mortgage, which is not going to happen. I feel like once I get the analyzing down I will be ready to move forward and start making offers on properties, however, I have been stuck on analyzing for a few months now and it has become quite frustrating. I also suffer from PTSD being a Marine Combat Vet, which I feel contributes to me getting frustrated rather quickly. I'd like to get a system for analyzing put in place to get the ball rolling. I have watched several of Brandon's videos on analyzing deals and several others and even listened to several podcasts on the topic, but for some reason things haven't clicked for me yet. Any help, advice, etc. is greatly appreciated. I prefer the Marine Corps "KISS" method (Keep It Simple Stupid). Thank you all.

Hi Joshua! I am in the same boat as you. The deal analyzing has yet to click with me too. I am following this thread now and hopefully someone can lay it out in simpler terms. Good Luck!

@Joshua Gutierrez Do you have Microsoft Excel?  If so, on this website, under tools>fileplace>spreadsheets there are a lot of spreadsheets one can utilize.  Aside from that I like to look at the Cash on Cash return in a rough calculation.  I take the price of the property and multiply by 23% (20% down 3% closing costs) and add any repair costs I expect to that, getting my expected cash outlay.  Then I calculate the mortgage payment (there are tons of calculators online to do this), add in monthly taxes (county website, then update for your purchase price), monthly insurance (get an estimate from an insurance broker), and add $50 per a unit in maintenance (this will vary depending on size of unit, age, etc.); multiply this monthly cost by 12.  Next I run comps to see how much rent per a month I think I can get.  I multiply the rent by 11 (I assume one month of vacancy).  I subtract the yearly rent by  yearly cost and get my yearly cash flow ("CF") (some minor things are left out like taxes, but I consider that to be upside to my analysis).  Lastly, I divide my CF by my cash outlay that we did in the beginning (the 23%).  Personally I want a minimum of 7% cash on cash return, but if I find a deal with more risk my return minimum requirement goes up and vice versa.  I have had 20% cash on cash returns that need some work, and I have had 5.5% cash on cash return with a model home lease back that I expect to give me the 5.5% for 2 years and 0 work / minimum risk.

For example, I buy a $100k place.  My cash outlay is $23k.  Mortgage payment is ~$480, taxes are $200, Insurance is $100 and maintenance is $50.  My cash payments are $830.  If I can rent it for $1100 then my yearly gross rent is $12,100 (1100x11).  My yearly cash expense is $9960 (830*12).  My CF is $2140.  Lastly take CF and divide Cash outlay; $2140/$23k which gives me a cash on cash return of 9.3%.  If the property looks to be in decent condition in a good area I would like this deal.  There is other qualitative information that is very important too, but above was just looking at the analysis.

Yes, that is a very good post.  One thing I would suggest is ask yourself why you are using one metric or another. I use cash on cash return because it is a way for me to measure other investment returns on an apple to apple basis. Also, since my wife and I have W2 jobs that we want our real estate business to replace we can not invest for capital appreciation and the cash flow is very important. People will tell you one number is better than another, but all the metrics are used in different scenarios and investment philosophies. IMHO, dont listen to what is the "best" metric and figure out why you want to use one or the other. They all have pros and cons.

Cash flow is my focus. Fortunately I have good cash flow from retrirement and the VA to be able to live comfortably and I can devote myself full time to obtaining a rental portfolio. So far I am in the beginning stages and I'm educating myself the best I can. However, just when I think I'm ready to rock I hear Michael Blank on the podcast talking about if he were to start over he would avoid sfr flips and get right into apartment buildings no less than 16 units. My brain is warped right now. I appreciate your feedback Justin.

@Joshua Gutierrez congrats on making the decision to jump into real estate investing. Great choice! But don't think that you have to jump all in by yourself on your first deal. Do you have any other experience with real estate investing? The beauty of real estate is there are so many ways to make money. How do you know you won't like buy and hold, or value add apartment investing, or mobile home park investing? My advice is to talk with your mentors and maybe throw in 50k on your first flip as a passive partner. Learn the business, offer to help in some other capacity while investing some of your money. See if you like it. Fix and flip is its own animal. You may love it, you might not. The point is, test the water a bit -if you are truly having a tough time analyzing deals and can't pull the trigger, this may help. Lastly, always ask someone else to analyze a deal if something just doesn't seem right. Good luck!!

Originally posted by @Joshua Gutierrez :

Hi ya'll! My name is Josh. I recently retired medically from law enforcement out here in California. I just got my real estate license and have been heavily reading about building cash flow through multifamily properties. I'm working with 200k of my own money and would like to capitalize on that. I was thinking of a system something like flip, flip, flip, acquire a multifamily rental, flip, flip flip, acquire etc. I have a couple of great mentors I grew up with that are doing great our here with flips and rentals and I'm actually on one of their teams for the retail side. However, I'm finding it difficult to gather their time and learn how to analyze deals. I'm getting potentials deals sent to me from other agents and MLS alerts I have set up for my specific criteria, but I get stuck on analyzing a deal. For example, I am looking into a triplex here in California. The asking price is 579K (I know I don't want it for that). GSI is $39,600, NOI is $27,100 ($12,500 annual expenses according to the listing). I tried using the 50% rule, but I must be doing something wrong because according to me I would have $,1650 left to pay my mortgage, which is not going to happen. I feel like once I get the analyzing down I will be ready to move forward and start making offers on properties, however, I have been stuck on analyzing for a few months now and it has become quite frustrating. I also suffer from PTSD being a Marine Combat Vet, which I feel contributes to me getting frustrated rather quickly. I'd like to get a system for analyzing put in place to get the ball rolling. I have watched several of Brandon's videos on analyzing deals and several others and even listened to several podcasts on the topic, but for some reason things haven't clicked for me yet. Any help, advice, etc. is greatly appreciated. I prefer the Marine Corps "KISS" method (Keep It Simple Stupid). Thank you all.


Thanks for your service Joshua. 


Depending on how aggressive you're looking to get here- I like the flip flip flip.... flipflipflipflipflipflip model. And just buy rentals with money I don't have a clear plan to spend on scaling my sales business. It's high pressure, high stress, and requires strong execution though. That's the downside. It's a business you have to really learn to build. Rentals are passive but will make you a little bit less money, and take longer to get you wealthy. 


Two opposite sides of the spectrum- I would say take a close look at what you really want from your business and place yourself somewhere on that spectrum. Some days are an emotional roller coaster for me. Other days I make my previous jobs annual salary in an 8 hour stint at the office. Sometimes I think of liquidating my whole business, buying rentals, and yielding 20k/mo passive for an endgame today. Then my business partner front-hand slaps some sense into me and I put my foot back on the gas. 

It's all about what you want. You can figure out the rest, both routes are equally possible.

Hi Joshua, thanks for your service.

For buy and holds:

I'd recommend building a spreadsheet so you can easily plug in numbers to see the ROI - with google you should be able to find some.

The spreadsheet should allow you to plug in rental income minus all costs associated (x% vacancy rate, make ready costs, property tax, mortgage payments, ownership fees, $50-75/mo reserve fund, insurance etc.) to measure cashflow or your net operating income.

The ROI should also take into account an estimated appreciation in both rent and property value each year.

I just plug in the purchase price, estimated rent / property tax / ownership fees each month and can instantly see the return on my money which allows me to quickly size up different properties' return rates.

For flips:

The numbers are going to be less about rental income and more about properly being able to estimate contractor / repair costs & what the finished property will sell for. You'll still take into account the costs above but only for the estimated time you'll need to hold the property before being able to sell. Make sure to factor in selling costs into the equation.

Josh, have you thought about branching out outside of CA market? 200k goes a lot farther in other places (10 decent homes in OKC, for example). Being mobile will allow you to be physically present and do your due diligence. Just my 0.02c.

@Victor S. Hi Victor. Yes, I am interested in outside markets. I’ve been reading some good books on it. Currently I’m in the middle of David Greene’s “Long-Distance Real Estate Investing.” Lots of great information. My mentors have yet to invest in outside markets so I can’t pick their brains about it and when I try they seem reluctant from lack of market knowledge outside, understandably.