Courses / Real Estate Investment Fundamentals / Module 3
Module 3: Analyzing Investment Deals
The ability to accurately analyze deals is the most valuable skill in real estate investing. It separates profitable investors from those who lose money on 'good deals.'
The Analysis Framework
- Estimate gross rental income (use current market data, not seller's projections).
- Deduct vacancy (5–8% in stable markets).
- Deduct all operating expenses (typically 35–50% of gross rents).
- Calculate NOI = Gross Rent - Vacancy - OpEx.
- Subtract debt service (mortgage payments) to get cash flow.
- Calculate CoC return = Annual Cash Flow / Total Cash Invested.
Red Flags in Seller Numbers
- No vacancy deduction (every property has vacancy).
- Actual rents used instead of current market rents.
- Missing capital expenditure reserves.
- Management fee excluded (even if self-managing, value your time).
- Overly optimistic future rent projections.
Key Takeaways from This Module
- Calculate NOI, cap rate, and cash-on-cash return for any property
- Build a comprehensive cash flow analysis with conservative assumptions
- Identify red flags in proformas and seller-provided numbers