Once you have narrowed down the markets and found interesting properties, then evaluate the deals. The first step in analyzing the value of a property is to understand what contributes to its value. It is time to do some financial analysis, and to make sure you have the best information available when doing so. Often it is in the seller’s best interest to provide numbers that are more “appealing” than they are accurate, so focus on getting hard data like previous year’s tax returns, property tax bills, and maintenance records rather than pro-form statements. Key information to review:
- Property Details
- Purchase Information
- Financing Information
- Income
- Expenses
- Tax Information
Key Metrics:
Once you have all of your data you want to feed it into some of the key financial models. Understanding real estate finance includes knowing some of the key formulas and ratios. Here are some of the most common real estate formulas and metrics you should use to evaluate your investment deals.
- Net Operating Income (NOI)
- Cash Flow
- Cap Rate
- Cash-on-Cash Return (COC)
- Internal Rate of Return (IRR)
- Net Present Value (NPV)