What’s Your First Filter Before You Even Underwrite a Deal?

[Daniel Sehy]

Over the years, I’ve realized that one of the easiest ways to waste time as an investor is by analyzing too many deals that were never worth a second look in the first place. Early on, I would spend hours building spreadsheets and running scenarios on properties that, in hindsight, I should’ve tossed aside in the first 5 minutes.

These days, I’ve tried to discipline myself with a few quick filters. For example, I like to see a certain rent-to-price ratio before I’ll dive deeper. I also take an initial look at things like location dynamics (employment drivers, nearby schools/universities) and property condition. If those boxes aren’t at least “reasonable,” I’ll usually stop there.

That said, I know I still get stuck sometimes overanalyzing or dismissing deals too quickly. It’s a balance I’m still trying to fine-tune, and I’m curious how others approach this stage.

Questions:

• What’s your very first “deal filter” before you spend time on spreadsheets?

• Have your quick filters changed as your portfolio has grown?

• Do you think some investors cut deals too early that could’ve been winners with creativity?

[John Henry]

Great topic. I’ve noticed that the best investors tend to keep their filters simple but strict. For me, the first screen is usually location + rent-to-price ratio. If it doesn’t at least hit a baseline cash-on-cash potential, I don’t waste time running full numbers.

One thing I’ve also learned: filters only work well when you’ve got a steady stream of deals to look at. If you’re only seeing 1–2 properties a month, you’ll either overanalyze or force a deal that doesn’t really work. When you’ve got consistent lead flow, it’s easier to stick to your filters without second-guessing.