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Insider Look: Deal Analysis of My First Investment Property

Recently, I posted my strategy for screening and analyzing real estate investment properties the right way. Now, I’d like to share the actual deal analysis for my first rental investment property!

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investment property analysis
Virtual staging of the bottom unit in our first investment property

Now, a brief review

Before going into the deal analysis itself, I’d recommend you read this post on my analysis strategies first if you haven’t already.

But, I’ll give a quick recap as a refresher.

  • I invest in multifamily cash flowing rental investment properties using a Buy, Fix, Rent, and Hold model
  • To screen investment properties, I use the 1% rule (Monthly rent/Purchase price >/= 1%)
    • If it meets criteria, I move forward to more analysis
    • If it doesn’t meet criteria, I move on to another property
  • To analyze investment properties, I use cash-on-cash return (Annual Net Income/Money Out of Your Pocket >/= 10%)
    • If it meets criteria, I lock up the property by placing an offer based on your criteria
    • If it doesn’t meet criteria, I move on to another property
  • To valuate investment properties, I use NOI (Annual Income not including financing)
    • Estimated Sale Price = NOI/X% (based on local market data, usually 8%)

We are going to pick things up in the analysis stage. My wife and I had already screened this property (which we ultimately bought) and it met the 1% rule. So we moved forward for further in depth analysis.

Last note: The Excel calculator that I use for calculating CoC is from SemiRetired MD. They have an awesome blog and Selenid and I took their flagship course, Zero to Freedom Through Cash Flowing Rentals. They have been a huge influence in our real estate investing journey so I highly recommend checking their resources out!

So, now that we are all on the same page, here’s my investment property deal analysis!

Stage 1 – Initial Investment Property Analysis

Here’s what our initial analysis looked like:

investment property analysis

This analysis was based on the following assumptions that we made after walking through the property with our investor real estate agent:

  • The asking price was $159,000; however we knew that it was severely underpriced and would go for closer to $175-180K.
  • We planned an asking price of $184,500 since we would also require an inspection contingency. The higher price made our offer more enticing.
  • We estimated about $5,000 in necessary renovation/rehab.
  • Based on our agent, it was estimated that we could get rents of $1000 for the downstairs unit and $900 for the smaller upstairs unit.
  • We got our mortgage terms and closing costs for our lender.
  • The insurance terms were from our insurance broker and the taxes were from the county open access database.
  • Utilities were estimated from the utility companies (they will give you an average of past month rates for the property).
  • Property management and turnover fees were based on a traditional property management company that we had interviewed and liked.
  • Vacancy rates and maintenance costs are general estimates.

Based on this, the cash-on-cash return was only an estimated 3.0%

According to this number, we should have walked away from the property. However, we had yet to consider the hidden value of the property.

Hidden value is the concept that, by making your property more profitable (increasing income and/or decreasing expenses), you can increase the value of the property and even force appreciation.

This is a very powerful concept. The real estate market is inefficient. This means that the business of local real estate is not run as well as it could. That is what allows you to come in, buy a property, make it run efficiently by tapping hidden value, and increase its value!

However, this first, most conservative estimates did demonstrate that the property should have a positive cash flow in the worst case scenario, even if it was only 3%. This is a good thing.

Stage 2 – Investment Property Analysis including Hidden Value

This is what our analysis looked like after we took into consideration hidden value that we identified in the property.

investment property analysis

Let’s review what changed.

  • First, we believed that the rent estimates we received were under market value. Based on Rentometer, local market comparisons, and opinions from various local property managers, we estimated that we could get closer to $1100 for the lower unit and $900 for the upper unit.
  • Second, the property has a detached large shed with separate electricity. We estimated that we could rent this out for $100/month, increasing our estimated monthly gross rental income to $2100.
  • Last, we felt that we could bill back utilities to the tenants, decreasing our monthly utilities expenses to $0.

By tapping perceived hidden value, we increased our estimated CoC to 10.4%. Now, the property met our criteria.

Based on our strategy, we thus decided to move forward and make an offer

We offered $184,500 with an inspection and financing contingency and it was accepted!

More on that process here.

We now moved into the due diligence period and scheduled the inspection. Our contractor met us at the inspection and walked through with us.

Stage 3 – Investment Property Analysis after Inspection

investment property analysis

Here’s what changed at this stage:

  • Our inspection revealed some issues that had not been known or disclosed by the seller. This included some foundation issues that were not immediate but still decreased the effective value of the property.
  • Other more minor repairs were identified and would be required prior to renting the units.
  • Based on these inspection results, we negotiated a decreased purchase price of $174,500. We got a $10,000 haircut!
  • Our contractor estimated that all of the renovations/repairs we wanted to do would roughly cost $6500.
  • We also decided at this point to use an online property management company called Hemlane. We would otherwise self-manage via automation (more info on this here). This took our property management fee down to 2% from 10% and our turnover cost down to ~$500 from $1000.

Our CoC estimate now stood at 15.9%! Needless to say, we were stoked and excited to close!

Finally, after about 60 days, we closed and completed renovations/repairs within a week.

Then, we placed ads for the units online and in front of the property. They rented within 5 days.

Final Stage – Analysis after Renting Out Units

investment property analysis
  • We advertised the top unit for $900/month
    • The unit rented for $875/month with a $25/month pet fee
  • We advertised the bottom unit for $1150/month
    • The unit rented for $1150/month with a $40/month pet fee (2 pets)
  • We advertised and rented the shed for $100/month

With these final numbers, our cash-on-cash return for year #1 is 17.5%!

Take Away(s)

I hope that this exercise has demonstrated how the analysis for investment properties is critical for success as a real estate investor. But, it is also a process and evolves through the acquisition of a property.

The other important take away is that your initial cash-on-cash calculation likely will not meet your 10% goal.

Again, the reason for this is that the real estate market is not efficient. Your CoC should reach your goal after taking into consideration tapping hidden value. This can feel scary because you have to take a leap of faith. But, the important thing is that you are conservative in your estimates.

Also, as long as the property is cash flowing in your most basic estimate before taking into account tapping hidden value, then you are ok even in the worst case scenario.

In my case, we knew that even if everything fell through in the worst way, we could expect the cash flow to be 3%. In this worst case scenario, our renters would still be paying our mortgage every month and some cash would still be going into our pocket.

But beyond that, a still conservative estimate after accounting for hidden value gave us our goal CoC of at least 10%. We knew that if we reached this CoC, we would be ecstatic.

Doing this built multiple layers of cushion into our analysis.

As you can see we even exceeded our estimates by aggressively tapping hidden value and forcing appreciation so that our CoC is over 17%!

But really, the most important take away from all of this is that if I can do it, so can you!

Take the steps today to get started in your real estate investing journey:

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    17 thoughts on “Insider Look: Deal Analysis of My First Investment Property”

    1. great information right there
      you inspired me so much.
      I pray God give me the courage and guidance needed to walk into your path.
      the sky is our limit.
      best wishes!

      • This is really where the relationship with your investor agent becomes super important. Our agent is experienced and is a real estate investor himself. So he was able to identify that the property would likely go at a higher price. We then used our calculations to see what price would work for our criteria.


    2. Great article, thanks for sharing your experience! I’m a third year resident in the research and learning phase of real estate investment. I plan on buying my first property as a fellow. Question, I noticed your offer to as higher than the selling price? Is this common when making offers? I was under the impression that sellers usually put a higher asking price to take into account for eventually selling it for a bit cheaper or in case of an inspection contingency from the buyer. Is it because the market is hot right now at your locale and properties are being sold fast?

      • Hey Sohaib, thanks for reading! And also congrats on getting a head start on all of this, really great. In short, yes when I bought the property the market was hot. We offered on the upper end of what worked with our calculations. We knew that if we got it for that price, we would cash flow well and meet our criteria. We also knew it would be an appealing offer and likely would be accepted. We went into inspection looking to take a haircut if possible which we eventually did for $10,000. But even if we hadn’t, the numbers still worked for us. Good luck getting started! We also run a real estate happy hour through my Facebook group. If interested, would love to have you join!

      • Hey Kareen! We found our agent through word of mouth and researching in our market. We interviewed a few agents and settled on the ones we use now. But we are always looking! Our contractor we got from a recommendation but we ended up not loving them so actually use another now. What market(s) are you looking in?

    3. Is this property in Buffalo, NY? Are the non-owner occupied property taxes really only $1,340/year on a $175K property? I have a similar valued property outside Rochester, NY and the property taxes equal the P/I payment, thus practically doubling the total mortgage (PITI) payment! Property taxes are the single most important variable other than rents (once your mortgage is locked in for 30 years) and any investor should be familiar with them – particularly if you invest remotely as I have.

        • But won’t they eventually get reassessed? My point is that in many markets, it can lead to rather dramatic changes in your economics. For instance, in Indianapolis, there are annual adjustments made in assessed values based on estimated market values. Rental properties are taxed at much higher rates than primary residence. So be sure to make sure to allow for this in your analysis.


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