The difference between a good and bad rental deal.

4 Replies

What are some red flags in a financial analysis for cashflow/rental investors when looking for deals? And on the flip side, what are some "green flags" that will make an investor want to purchase a buy & hold property? Thanking you all for your advice in advance.

Red flags would be if it doesn't cash flow after accounting for all expenses.

Green flags would be if it does cash flow after accounting for all expenses.

@Brian Garrett

Thanks for your response.

I have, what I think is a deal, and no one is taking it and I'm wondering why. The annual cash flow is at least $10,000 a month! Projected Annual income is $236,394. Annual Expenses are $27,000. NOI is $209,394. It has a 11.9% cap rate (annual NOI = $209,394/$1,750,000)......

Do you see any red flags in this? Do you see any green flags in this?

Yes I see immediate red flags in this deal.

There is no way a property generates $236k income and only has $27k expenses so your NOI is definitely incorrect.

You have a good deal when your lender is willing to work with you.
You have a bad deal when they toss your deal back at you saying “no”.
You have a great deal when your lender starts looking at you wide eyed and drooling.

Biggest red flags in my experience are paying too much for the acquisition, taxes, and maintenance. The location, of your property. (It cash flows but your house is on a bad side of town). The people, who lives around your property? Are they bad people? Red flag.