I'm curious to hear how many of you are analyzing potential properties. What figures have you found to be the best indicators of a potentially good investment, and why?
Everyone should be analyzing potential properties... all the time...
I am a data nerd.. so I go ratio crazy during my analysis.
- Debt Service Ratio
- Cap Rate
- Net Income to Cost
- Cash Flow to Cash in Deal
- Return on Cash+Equity
- Rent to Purchase Price
Jon, that's awesome. I'm currently reading up on REI Analysis and I have so many questions. I imagine that running all the numbers is the best way to secure a good investment.
• How do you typically go about getting the information you need to to accurately find a properties Net Operating Income? (i.e leases, expense, etc)?
• At what point of the buying process do you ask for this information?
• Do you ask for documents like P&Ls, leases and bill statements in your letter of intent or at some other time?
• I imagine it's normal to request information like this from Commercial properties. Is it typical to ask for this info forsmaller 2-4 unit properties?
• I imagine it's also normal to ask an agent for capitalization rates on commercial real estate. Is the same true for smaller properties?
I hope I haven't battered you with too many questions, lol. The more I read up on the subject, the more questions I come up with.
Most of the information you need can be pulled from public records, mortgage calculators, and some just 'rough' estimates.
I assume an 8% expense rate, an 8% cap ex rate, and a 10% management exp for properties when I am just doing the first round of figures.
You will get the rent roll and expenses of a property after you have it under contract. Just make sure you write into the contract that the offer is dependent on the review of those documents. I have only done BRRR so I never care about any of that because I will be gutting the place anyways.
With that info you are good to go on running your numbers!
That's great info. If I understood what you're saying, an in-depth analysis happens once I have a property under contract. I should also write a contingency in the contract so that I can safely back out or renegotiate if I don't like the numbers I'm getting.
I'll definitely be figuring out what "rough numbers" make sense in my area for an initial analysis.