How to analyze deals for beginners

[Jhonatan Espinosa]

Hey everyone! Progressing through my early stages in real estate investing...I'm having a lot of difficulties knowing where to get started in analyzing deals and running numbers. I'm checking Zillow, I just don't know whether a deal is worth it or not. Any tips or advice on how to effectively analyze deals? Is there a step by step plan to follow?

[Jerry Thompson]

FWIW @Jhonatan Espinosa, the equation Mike included was not quite right, wanted to make sure it was clear in case you were confused. 

The "percent rule" takes the purchase price and helps you determine the needed income to cashflow. Somewhere between 1-2% is considered ideal, although it can be higher, and lower than 1% is typically not advised.

$50,000 (purchase price) x .02 (2% rule) = $1000 (income needed to cashflow)

On the flip side, dividing the estimated income by your desired percent rule will give you a rough idea of your max purchase price:

$800 (income) / .02 (2% rule) = $40,000 (max purchase price)

Once you get an idea of the rents or income plays in your market, your offers become sort of automatic. Per that last example, every area with a rent estimate of $800 will result in a max purchase price of $40,000 if you want a 2% deal.

 I'm in Dallas trying to find a 1.5% deal. After doing some analysis to get my ideal cashflow number, that's about what I found it took in the areas I've been looking to hit my cashflow goal. Again, every market is a bit different.