How to Analyze a Real Estate Deal Like an Investor

A seasoned investor can analyze a deal in ninety seconds. Not because she is psychic. Because she has a checklist she has run a thousand times. Step one. The one percent rule. Monthly rent divided by purchase price. Anything close to one percent is worth a deeper look. Anything well below it needs a strong appreciation thesis to justify itself. Step two. The fifty percent rule. Assume operating expenses, excluding the mortgage, will eat fifty percent of gross rent over time. Taxes, insurance, vacancy, maintenance, capital expenditures, management. If the remaining half does not comfortably cover debt service with cash left over, the deal is thin. Step three. Cash on cash. Annual cash flow divided by total cash invested, including down payment, closing costs, and any initial repairs. A healthy small-multifamily deal in the markets I work in produces six to twelve percent cash on cash in year one, with upside as rents rise. Step four. The story. Why is this seller selling. What is the neighborhood doing. What is the rent trajectory. What does the next buyer pay you when you exit. Ninety seconds gets you to "yes, keep going" or "no, next deal." The full underwrite still happens, but the screen saves you from the deals that were never going to pencil. Speed without rigor is gambling. Rigor without speed is paralysis. The investor's job is both.