The Basics of Real Estate Investment Deal Analysis

64 Replies

So many new and even many experienced real estate investors have little clue about doing a proper analysis of a deal. With that in mind, I thought it was important to share the article below, written by J. Scott on the BiggerPockets Blog, about the basic real estate financial analysis process.

It is long, detailed, and worth saving.

Introduction to Real Estate Investment Deal Analysis

As always, I hope that you find it to be helpful!

Hi, found this in unanswered forums. J Scott does a good job of explaining some financial issues for new investors for a small portfolio. Bill

This blog is well worth any investor's time to read. J Scott provides some good guidance on analyzing an investment.

Thanks Janet, for giving it a bump. Somehow, I missed this when it first published.

Originally posted by Janet Powers:
Joshua,
Is there a place to get an unlocked copy of this spreadsheet or similar? I'd hate to reinvent the wheel.
Thanks!

I agree that J Scott's blog post is really great especially for people starting with real estate analysis.
You can check out his personal blog as well - he is putting there details of his reahab deals, and always he has there some tables to show you how he calculated the returns and which numbers he used. It is nice to see the calculations on real examples. I like that he is using IRR a lot.

Anyway, for the free spreadsheet - one was placed for download by Joshua in this thread: http://www.biggerpockets.com/forums/88/topics/25519-free-property-analysis-worksheet

Hope that helps.

Originally posted by Janet Powers:
Joshua,
Is there a place to get an unlocked copy of this spreadsheet or similar? I'd hate to reinvent the wheel.
Thanks!

You can get a copy of the spreadsheet on my website...just sign up for the website Newsletter and you'll get a bunch of freebies, including this spreadsheet...

nice write up... The irr calculation will be much more accurate if you can proforma monthly and relevant if you parse out the cash flow and reversion. Using a proforma to determine the NPV will help out those relying on cap rates to determine property valuation.

Really enjoyed the read.  The article was able to organize the analysis into smaller steps & with a clearer picture of the details, the decision process becomes more streamlined.  Well done and thank you. 

I was just getting ready to create a thread regarding my process for deal analysis to ensure I wasn't missing anything; instead, I read this piece and it is fantastic.  I've read much of this before on BP in bits and pieces, but it's great to see it all in one place - and explained extremely well.

I think my issue now is not so much about deal analysis as it is about finding deals. I guess that's a challenge we all face. For me, I mostly look on MLS and the Fannie/Freddie foreclosure sites. I'm starting to think that I need to link up with some wholesalers in my area. From what I've seen, however, many wholesalers marketing the lower-priced properties are typically looking for all-cash buyers. Any wholesalers in the Lexington, Kentucky area that are okay with investor buyers with financing? If so, please shoot me a private message.

Thanks.

Hey @Joshua Dorkin,

Thanks for sharing an article, I came across many new aspects, which need to be considered while analyzing the financial details of the property and how the price of the property is directly related to the owner's profit.

Thanks so much @Joshua Dorkin for posting this link to J Scott's blog on analyzing a property. I am NOT a numbers person and this is the first easily digestible explanation of what I should be doing on every property I consider. I was so impressed I made a cheat sheet with the formulas that hangs on the wall so I can reference it while I work. 

@Joshua Dorkin for posting this link to J Scott's blog on analyzing a property. I am NOT a numbers person and this is the first easily digestible explanation of what I should be doing on every property I consider. I was so impressed I made a cheat sheet with the formulas that hangs on the wall so I can reference it while I work. 


 

I would look for the correct definition on NOI before I'd commit to a cheat sheet.

Originally posted by @Kim Handelman :

Thanks so much @Joshua Dorkin for posting this link to J Scott's blog on analyzing a property. I am NOT a numbers person and this is the first easily digestible explanation of what I should be doing on every property I consider. I was so impressed I made a cheat sheet with the formulas that hangs on the wall so I can reference it while I work. 

 Thanks Kim...glad it helped!

Originally posted by @Reggie Maggard :

How many deals do i need to do before i understand what a proforma is. this is greek to me. Just a sheet with a bunch of numbers is all i know so far.

 Did you read the article?

J Scott!!!! You dog! That article was awesome! God bless my friend, that article cleared up some fogginess in my cranial vault. Rest well knowing you helped someone greatly today. Thank you! 

PS, perfect timing bc Im going to look at a 4 plex tomorrow and possibly my second deal.

Originally posted by @J Scott:
Originally posted by @Reggie Maggard:

No i couldn't find it. 

 There is a link in the very first post...

 This made me LOL.  

By the way, awesome article and came in at the perfect time as I'm looking to analyze a property in Bowie.  This has been tremendously helpful.