How do you Analyze Properties?

7 Replies

@Jaron S. I use the 4 square analysis, accounting for 25% of rent as an expense (capex/maintenance/vacancy). It works for me.

I've seen spreadsheets with bells and whistles and waterfall charts and ROI calculations that rival the complexity of my business development colleagues in a Fortune 500 company. It isn't worth my time to understand that.

@Jaron S. Originally I made an Excel spreadsheet. Then I discovered BiggerPockets and it’s calculator and just realized how much better it was than my Excel spreadsheet was.

Ultimately I signed up for the Pro membership. I’m familiar enough with my area and rentals and real estate in general that I didn’t just go through and run 100s of sample properties like Brandon Turner suggests but if I get interested in a particular property I do get the information and run the numbers and play with them and create different scenarios to see what works.

For instance I’m looking at a property now that at the asking price it cash flows at like $20 which is why it’s not sold. Based on the calculator I’m going to offer a price it does work at which will horrify my Realtor but he’s used to me by now! Then we’ll see how it goes.

@Nick Barlow do you find that 25% usually works? Does it work when you purchase the property or does that end up too low at sometimes? Also, 25% with prop management or not?

@Nader Hachem that 25% is what I account for capex, vacancy, and repairs. Property management is a separate cost, and 10% is usually what I account for that.

It has worked for me for properties that don’t need a roof or foundation (ie high capex items) at time of purchase. 
I've been REI for about 4.5 years, and only have one property that I'm doing a big capex repair (foundation) that we've owned for 3 years. If I added up all of the saved income from that one property using the metric above, that turns out to saving only 10-20% of rents (10% capex plus 10% maintenance): it's not enough to cover this one expense-it's roughly 2/3 of what is needed. However, the Cashflow produced by a handful of properties is enough to cover that expense on an annualized basis.

My goal is a cash out refi to source the funds, keeping the Cashflow as further reserves.