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Surefire Real Estate Deal Analysis Formula

real estate deal analysis
Let’s talk about real estate deal analysis. You see, there are several ways you can cash out of a real estate investment deal. You should know your options and what makes sense for each situation you’re in.

However, your net profit is directly dictated by what you pay for the property on the front end. If you overpaid, you’re going to lose money on the back end. That’s why it’s commonly said, “you make money when you buy, not sell.”

This means you should know a little about real estate deal analysis.

The big question is how should you determine whether a property is a good deal or not?

There are some pieces of information you should learn beforehand that will help you make the right decision of what to do to generate the most net profit on your real estate transaction with the least tax obligation possible.

Real Estate Deal Analysis

Before going into a real estate deal you have to analyze the situation so you know what to offer. This is the first step to determining how successful your deal is when you cash out.

Once you find a potential deal that you would take a closer look at then you should follow these steps to determine whether it’s a go or no go.

Run Comps

First step to performing real estate deal analysis is determining whether you have a good deal or one. You can do this by running comparable sales, also known as “comps.”

These houses the those that are similar to the one you are considering. So if you’re considering a ranch home with 2000 sq ft., three bedrooms, and two bathrooms, then your comps will also be the same.

MLS – the listings you see here will give you the most accurate comps sold within the last years. It’s probably a great idea to use comps for the last 90 days, then go a little further back if need.

That’s why you should reach out to your real estate agent who was working with you and all your deals, unless you are a realtor as well.

You can also check out comps at sites like:

Once you find a house that you want to run comps on you need to move really fast because it’s good deals don’t stick around long.

Keep in mind that these sites give you a final say; they will give you ARV. But they are good for providing a quick reference of whether or not you should go further. For the most accurate information, you need MLS.

It’s a good idea to go with the lowest comps that are comparable to the property you are looking at so that you are protected from overpaying on a deal.

After you have selected 3 to 5 comps that are within a half-mile radius of the property you are considering you should see what your property will be worth when it is move-in ready.

Estimate Repairs

The next step in your real estate deal analysis is estimating repairs.

Each real estate investor works a little bit differently. Some who are just getting started or only do a few deals a year may take the time to go visit and inspect the house they are considering to ensure all the repairs that the seller has said should be made are the only ones that need to be made.

Real estate investors who do more deals, out-of-state deals, or just don’t want to go through the trouble of visiting every house may choose to estimate repairs by telephone only.

You can make offers by telephone if you allow enough money for repairs. Here are some of the things you may need to include:

If the seller says…

  • the house is ready to move in you should estimate about $5000 in repairs
  • the house needs a little paint and carpet makeover you should estimate about $10,000 in repairs
  • the house needs some work you should estimate about $15,000 in repairs
  • the house needs a lot of work you should estimate about $25,000 in repairs
  • the house is too damaged then you should go inspect the house

Use these estimates instead of trying to get exact numbers at this point in the process. Keep it simple.

Calculate Your Offer

Finally, in your real estate deal analysis, your final step is to decide what you’re going to offer the seller.

In general, it is recommended that you make an offer in the range of $.40-$.60 on the dollar, or 40 to 60% of the ARV. It houses a real beater and needs a ton of work then you may even go lower than 40%.

If the ARV of the comps is $100,000, and you want to make about $30,000 in net profit, then you it offer no more than $44,000 for the home.

You may wonder how I came to that estimate.

Here’s the math:

$100,000 x 70% = $70,000

  • Minus closing costs: $4,000
  • Minus holding costs: $2,000
  • Minus selling cost: $5,000
  • Minus repairs: $15,000

After deducting all these costs from $70,000, you get $44,000. This price insurance you don’t shoot yourself in the foot and end up upside down on a deal and that you make some profit from your efforts.

When it comes to all of these expenses, the truth is they can be a little higher or they can be a little lower. These are just estimates that give you a point of reference.

If you decide that this is a property you want to wholesale as an exit strategy then you should take out an additional $5,000. This ensures that you make a profit and the real estate investor you sell to makes a profit of around 30%.

If you want to focus on wholesaling then this is a great way to get real estate investors lined up to buy all your properties. When the hearing that you find deals that can be sold for 30% net profit word will spread quick.

There are other ways to determine the value of a property on many real estate investors rely on this straightforward formula.

When determining the value of any property be sure to refer back to this article for this formula to help guide you to narrowing down your search on great real estate deals.

Get Started With Us!

Get started with the real estate agent who specializes in helping investors in the Westminster, Maryland area build empires.

If you have rental properties, contact us now to learn more how we can help grow your portfolio faster by handing over all the headaches landlord into us why you focus on collecting checks and closing deals. This is our real estate investment property management service. Contact us here to learn more.

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