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Real Estate Investment Analysis: How to Run the Numbers Like a Pro
Buying a property without crunching the numbers is like skydiving without a parachute! But don’t worry, you don’t need a finance degree. This guide breaks down how to analyze real estate deals like a pro, even if you’re just starting out.
Why Real Estate Analysis Matters
The right deal can fund your retirement, while the wrong one can drain your savings. Knowing how to calculate key metrics protects your time, money, and sanity. Let’s look at some essentials:
Key Metrics
- Cap Rate (Capitalization Rate): NOI / Purchase Price – Measures income return.
- Cash-on-Cash Return: (Annual Cash Flow / Cash Invested) x 100 – How hard your money is working.
- DSCR (Debt Service Coverage Ratio): NOI / Annual Debt Payments – A lender’s key metric.
Step-by-Step Analysis
1. Pull the Specs: Square footage, bedrooms, etc. 2. Estimate Rent: Zillow, Rentometer. 3. Estimate Expenses: Taxes, insurance, property management. 4. Calculate NOI: Net Operating Income. 5. Run Your Metrics – See the results!
Final Thoughts
Real estate investing is about math, not gambling. Focus on consistent processes, and build a data-driven approach. Don’t be afraid to seek professional help.
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