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There are three broad categories for analyzing real estate deals. In this article I will be discussing these three ways and show you how I analyze deals using these categories as well.
The three categories of real estate investing deal analysis are equity, cash flow, return on investment.
First let’s discuss equity.
When you are analyzing a real estate deal based on equity, you’re basically looking at how much of the discount you’re buying the house at.
The second major category is based on cash flow.
When we look at real estate deals based on cash flow, we’re analyzing how much money each month the house will produce.
And the last major category is return on investment.
When we look at return on investment, we are calculating a ratio of how much money we are making from the property and how much we have invested in the property.
When I do our deal analysis for our Analyzed Deals website, I actually use all three methods of deal analysis. I will calculate out how much equity is in the property. I will also calculate how much cash flow the property will produce based on 10% down payment and 20% down payment. I even calculate how much cash flow if you were to offer the property on a rent to own. I even run the numbers for return on investment based on the amount you put down.
How you decide to analyze your deals is determined largely in part by what you intend to do with the property when you purchase it.