Deal analysis in 3 steps

[Kristian Demsky]

Hi folks, just sharing some tips I got from a @Dave Meyer video a few months back. It really helped me to identify a market to invest in, starting zoomed out and then honing in on shortlisted markets to pick the one you want. (Thanks Dave). 

Deal analysis in 3 steps:

1. Macro indicators for the market

2. Housing market

3. Individual deal analysis

Macro indicators for the market:

Population growth

- Find data for market - ‘Resident Population in <City>, <State>’

- Compare to US average (by adding a line - ‘Population, Total for US’)

- Compare over last 10 years

- Compare as ‘Percentage Change From Year Ago’

- Data from FRED - https://fred.stlouisfed.org/

- You’re looking for the market to be keeping pace or exceeding the US average

Average hourly earnings

- Find data for market - ‘Average Hourly Earnings of All Employees: Total Private in <City>, <State>’

- Compare to US average (by adding a line - ‘Average Hourly Earnings of All Employees: Total Private’)

- Compare over last 10 years

- Compare as ‘Dollars Per Hour’

- Data from FRED - https://fred.stlouisfed.org/

- You’re looking for the market to be keeping pace or exceeding the US average

Unemployment rate

- Find data for market - ‘Unemployment Rate in <City>, <State>’

- Compare to US average (by adding a line - 'Unemployment Rate’)

- Compare over last 10 years

- Compare as ‘Percent’

- Data from FRED - https://fred.stlouisfed.org/

- You’re looking for the market to be keeping pace or less than the US average

Housing market:

Look at these in totality:

- Median sale price (lag indicator - growth indicates high demand)

- Inventory (lead indicator - low rate indicates it’s a seller’s market)

- Average sale to list price (lag indicator - can you offer below asking?)

- Median sale price YoY

- Inventory YoY

- Data can be sourced from Zillow, Realtor, RedFin, and so on.

Individual deal analysis:

Use the BiggerPockets calculators:

- ‘Rental Property’ calculator

- ‘Rent Estimator’ calculator

Some tips for data input:

- Input the asking price as purchase price

- Input annual growth as ‘2 per cent’ (this is the long-term US average)

- Input vacancy, maintenance and capital works as ‘5 per cent’

- Input property management as ‘8 per cent’

- If you’re planning to have the tenant cover all utilities, input ‘0’ for utilities

- Input ‘$20 per month’ for garbage disposal

- For duplex rent estimation, estimate each unit individually and combine the totals to get a complete estimate

- If the property looks to have been recently renovated to a high standard, you can increase the total rent estimation by 20 per cent

- The cash flow and cash-on-cash calculations should be assessed to meet your individual needs.

Hope this is helpful.