Real Estate Analysis – Ten Lines of Data You Must Include!

A real estate analysis is what you do when trying to determine whether a rental property will make a profitable investment. It is vital to successful real estate investing because it provides financial data about the income property real estate investors must always consider.

But a real estate analysis is only as good as the information you collect and offers little meaning to your investment goals unless the real estate analysis contains valid and realistic data.

In this article we’ll show you what information you must collect along with some nuances inherent in each that should be considered in order to insure that your analysis is meaningful.

1. Purchase Price

Okay, you found a rental property that that you like and now must decide how the investment property looks financially – regardless of what the seller tells you.

The seller wants $500,000 and is convinced that he is practically “giving” his property away because the ten-unit building down the street sold last year for $530,000. Plus, his property is much more attractive and has the lowest rents in the area – so he tells you. He even suggests that you can increase the rents and gross income after you make the purchase.

In other words, he likes his property and justifies his price. So it’s up to you to determine whether or not the property is priced right based on your own survey – not upon what the seller claims.

2. Present Loans

You want to know what loans are in place that might be assumed and whether or not the seller might consider carrying a second mortgage. Financing is a crucial element of real estate investing and you want your real estate analysis to reflect the best financial options available.

3. Number of Units, Unit Mix

Closely examine how many units the rental property has as well as the unit mix or configuration. How do those configurations stack up with tenant demand?

4. Rental Income, Vacancy Rate

What gross scheduled income and vacancy rate is the seller reporting?

Examine a current rent roll and pay particular attention to when the rents were last increased and whether they are realistic according to your own rent survey. Owners sometimes raise rents up to or beyond the market prior to selling the property, in turn passing on a bunch of disgruntled tenants that might shortly move out.

During your examination pay close attention for a potential to raise rents.

Also, bear in mind that zero vacancy is not realistic despite the fact that the owner’s property is at zero. So always include some allowance for vacancies in your real estate analysis.

5. Property Taxes

Ask the seller to produce a current tax bill or call the county tax collector’s office and request that information. Moreover, make an estimation of the property taxes you might pay if you purchase the rental property. In California, for instance, property taxes become one percent of the selling price and could be a great deal more than what the seller has been paying.

6. Insurance

Request a copy of the insurance policy and make certain that the coverage is adequate for you; it may be outdated, and perhaps well below the current value of the improvements.

To be safe, obtain a new insurance bid.

7. Utilities and Trash

Ask the seller to verify what he has been paying for electricity, water and sewer, gas (if applicable), and trash pick up for the past two or three years.

8. Repairs and Maintenance

Even after the owner produces his figures, estimate your own repairs and maintenance costs because the owner might have done all or a portion of his own repairs and maintenance or maybe was given a discount that you might not get.

In most cases, including six to eight percent of the gross operating income for property repairs and maintenance in your real estate analysis is sufficient.

9. Grounds Maintenance, Advertising, Pest Control

What has the owner been paying to keep the grounds maintained, perhaps a pool maintained, and for advertising? Are there any ongoing costs for a pest control service?

10. Property Management

One of the more important questions you need to answer is “just how involved do I want to become in the operations of my real estate investment?” Will you manage the property yourself, perhaps in combination with an onsite manager, or are you going to pay a professional management company to manage the property for you?

Property management costs can easily run between five-to-ten percent of the gross operating income generated by the rental property so don’t ignore including it in your real estate analysis.

So You Know

ProAPOD Real Estate Investment Software provides user-friendly forms in all three of its solutions that enable you to quickly and easily include all this data in your real estate analysis.

James Kobzeff

James Kobzeff has over thirty years experience as a realtor and investment real estate specialist. He is the developer of ProAPOD real estate investment software and freely shares his real estate investing articles.