Your Guide to Personal & Financial Freedom Through Real Estate

Make Smarter Offers: FREE Real Estate Deal Analyzer

Want the key to making smart buying decisions quickly?

You’ve found the property…

It’s in the right neighborhood.
It’s in good enough shape.
You know you will be able to find a buyer.
The owners are ready to sell.
It’s exactly what you're looking for.

What’s the next step?

Before you can do anything else, you need to analyze the deal to find out exactly how much you can pay for it and make the profit that you need for the deal to make sense.

But how do you know what that magical number is?

You can’t just guess. This is your business we’re talking about, so giving it your best guess isn’t good enough.

You need to gather all the information and look at the numbers. And not just give them a quick once over. No, you need to do a complete in depth analysis of the terms of the deal to avoid overpaying and losing your shirt. Pay even just a few thousand too much and you could easily end up losing money on the deal.

Since we’re all about making money so we can live a life of financial and time freedom, let’s talk about how to determine your offer and maximum purchase price for each new deal that comes your way.

What you need is a tool that evaluates data such as property values, repair costs, financing and holding costs, as well as buying and selling transaction costs to determine what you should buy the property for.

Here’s what you will need to evaluate:

  • After Repair Value of the property
  • Current “As-Is” Value
  • Estimated Repair Costs
  • Purchase Price
  • Hold Time
  • Financing Costs
    • Including first, second, and other miscellaneous mortgages or liens
  • Holding Costs
    • Including utilities, property taxes, insurance costs, HOA fees, and other miscellaneous holding costs
  • Buying Transaction Costs
  • Selling Transaction Costs

Once you have that information, you can play with the numbers and buying and selling scenarios to determine what your maximum purchase price needs to be based on your game plan for the property.

So the logical next question would be...

“what do I do with all these numbers once I have them?”

To be as efficient as possible, you’re going to need a spreadsheet or some software that does the calculations for you. 

So to help you out, we've taken the Deal Analyzer tool in Realeflow and created a spreadsheet that you can download right here and use to analyze your properties.

The Deal Analyzer is pre-filled with all the formulas and calculations you’ll need to make; all you have to do is gather the data and fill in the numbers.

Download your FREE Deal Analyzer Here

We’ve also provided 3 sheets so you can do a quick side by side comparison based on different buying and selling scenarios.

There’s a sheet for:

  • Buy and flip
  • Rehab  
  • Buy and hold

All you need to do is enter the numbers for these different types of deals and then compare the estimated net profit and return on investment to decide which is the best option for the deal.

This will also help you determine the maximum amount that you can purchase the property for by simply plugging in a different purchase price and seeing how it changes your estimated net profit.

An improper deal analysis can easily make or break the deal.

Here’s a walkthrough of the essentials for doing a deal analysis…

First, enter the property values and pricing information. 

After Repair Value
Enter in the after repair value, which is the market value of the property after necessary repairs have been made. When you get to this step, you should have already pulled comparables and done your due diligence to determine this number.

If you’re not sure where to go to pull comparables or what to look for, here are some suggestions.

MLS - If you’re a licensed real estate agent, you can use the Multiple Listing Service to pull comparables and run a full CMA (Comparable Market Analysis).

Realeflow - Anyone who uses Realeflow has access to an integrated tool that allows you to pull comparables and generate custom reports.

FlipComp - This is a software that provides access to listing data and comparables and analyzes deals in seconds.

Good comparables are:

  • Properties within 1/2 to 1 mile of your subject property
  • Similar square footage, bedrooms, bathrooms, year built, and lot size
  • Properties that have sold within the last 6-12 months 

Next, enter in the current as-is value and the estimated repair costs.

Estimated Repair Costs
You will need to do a repair estimate to determine the repair costs. If you’re new to real estate investing and aren’t sure about how to do a repair estimate, you can take a contractor with you to assess the property (which you may have to pay for) or you can use a software program to help you.

For example, Realeflow has a built in Home Repair Estimator which walks users through what to look for when creating a repair estimate. You simply use it as your guide, check off items that need repairs, and the Home Repair Estimator calculates everything based on preloaded formulas and national average costs of thousands of items. When the repair estimate is ready, it creates a full report that can be saved and printed.

For tips on creating a Repair Estimate, check out my previous post here.

Next, Enter in the purchase price and estimated hold time.

Purchase Price
Now when you analyze a potential deal like this, you should play around with the numbers to see how your purchase price will affect your bottom line. Doing this will help you determine the maximum amount that you can buy the property for based on how long you plan to hold it and what your strategy is for selling it.

Hold Time
Hold time will vary based on your sales strategy. If you’re going to flip it, you may only hold it for a month. If you’re going to rehab it, you may hold it for 4-6 months or more, and if you plan to hold it or rent it, you will obviously hold onto it for a lot longer.

Next, you will go to the financing section and fill out the mortgage information if you will be borrowing money to purchase the property or finance the rehab. We've got some default values already loaded in the Deal Analyzer to get you started, but you can update the information to be more inline with your specific deal and financing.

Holding Costs 
Next fill out the holding costs section, which is loaded with some default values for property taxes, HOA fees, insurance costs, and utilities to get you started. These numbers are a guide to get you started, but you should do your research and get the correct data to enter here for an accurate analysis.

Buying and Selling Transaction Costs
Next, complete the buying and selling transaction cost sections. Again, we’ve loaded it up with some default values, but if you find that they’re different for your deal, make sure you update them accordingly.

For the real estate agent fees and transfer and conveyance fees, just enter in the percentage that you will be paying and the deal analyzer will calculate
the dollar amount for you.

Once you've entered in all of the necessary information, the real estate Deal Analyzer will calculate everything for you and will give you an estimated net profit.

Once you have a baseline, you can change the purchase price and holding time and see how it affects your bottom line. This will help you determine what you should offer and the maximum amount that you can pay for the property.

If you’re not sure what you plan to do with the deal, you should fill out the 3 different sheets and do a side by side comparison of how your net profit differs based on your different exit strategies.

As an average, most investors will end up paying a maximum of about 70% of the After Repair Value, which leaves room for profit. So when you do your analysis, make sure you take that into account when determining your maximum offer amount.

Download Your Free Deal Analyzer Here

Give the Deal Analyzer a try and let me know how you like it by leaving a comment below!