Show158: Running numbers on properties to ensure it's a good deal

What is awesome about investing in real estate is that we know before we ever close on a deal and sign the dotted line whether a property is a good deal.

The process of buying rental property is in a lot of your control.

Which either…

A. people love because they like control

or

B. scares the daylights because they don't want to be responsible for the make or break of their financial investment.

And a big part of this comes down to knowing how to run numbers.

Knowing how to determine the return on investment that a property is going to yield you.

Knowing how to property find and estimate potential costs on the property.

It really comes down to knowing what to look, what questions to ask and how to calculate it.

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When it comes to running numbers on properties…this is the part you want to get right!

I can't stress enough the idea that when you invest in rental property the numbers should really make the decision for you. It's not an emotional decision.

It's an investment decision.

And you need tools to help you ensure that you are looking at the numbers the right way.

1.) Use a Property Analyzer/Calculator
When you're just getting started you're probably wondering….ok I can find out all of the numbers you mentioned earlier….but what the heck do I do with them?

And it's a valid question. Most of us aren't going to sit down and create an elaborate excel spreadsheet that runs the numbers for you.

No sweat.

There are tons of resources out there can help you run the numbers on properties. There are free analyzers (grab our analyze here) there are free apps that are mortgage calculators that can give you an idea of what a mortgage would look like so that you don't have to figure this out on your own.

The best thing about these analyzers/calcuators is that you simply input all of the information about the property (list price, taxes, insurance, rent, fees, etc) and it will calculate your return on investment and cash flow…

…so that you know right away whether that property meets your return on investment goals.

If it does then you can start going down the path of finding out more information and potentially scheduling a showing.

If it doesn't meet your ROI goal then it's easy to say…no way.

….and keep looking.

Not only does having a tool like this make it easier to qualify or disqualify a property for you but it ultimately saves you a lot of time too.

2.) Numbers are Black and White
For some this makes them breathe easy…

For those who like some gray area, this might be difficult to deal with.

But the truth is numbers are not subjective.

There is data and information out there that you will find on each and every property that will allow you to run a black and white analysis of a property.

This actually is what you used to drive me crazy about math classes. While I was an ok math student, I never really enjoyed the black and white nature of math.

As an English teacher, I lived in the gray area.

Symbolism and subjectivity lived in my classroom on a day to day basis and my students and I would spend class periods building arguments for the different interpretations of the mockingbird in To Kill a Mockingbird or the ibis bird in the story The Scarlet Ibis.

But what I have found is that when it comes to dealing with our money that we have saved and sacrificed for….

I want things to be black and white.

I want to know, with much certainty, if I buy this property it will make me a certain amount of money each month and year so long as it is rented.

In this niche of investing in rental property, there is subjectivity in some of the decisions. The location, the type of tenant you put in the property, the condition of the property.

Those things aren’t so black and white.

But when it comes to the numbers…it should be.

When you run an analysis on a property and it spits out your projected ROI and cash flow, you’ve got to trust it.

You take out the emotion and focus on what the property will make you and whether that reaches your profit goals as an investor.

The Hard Truth

At the core of investing in rental property, we do it to make money.

Yes, that money that we make allows us to reach those personal freedoms, whether it be leaving your job, spending more time with your kids, traveling the world.

But in order for us to reach those freedoms, we have to buy the right properties at the right price.

And the only way to know that a property is the right price is to do your due diligence in learning the market you plan to invest in.

And

Know how to run the numbers so that you can get a pretty darn close estimate of what type of return that property should make you.