Real Estate Investment Analysis Cheatshe

Cheatsheet Content

1. Property & Market Overview Property Details: Address, Type (Residential, Commercial, Multi-family, etc.) Size (SF, # Units), Year Built, Condition Purchase Price, Closing Costs, Renovation Budget Market Data: Neighborhood demographics (population, income, growth) Vacancy rates (submarket, property type) Rent comparables (comps), Sales comparables Economic indicators (job growth, interest rates) 2. Income Analysis Potential Gross Income (PGI): Rental Income: (Total units $\times$ Avg. rent $\times$ 12 months) Other Income: Laundry, parking, storage, fees Effective Gross Income (EGI): Formula: $EGI = PGI \times (1 - \text{Vacancy Rate})$ Vacancy Rate (estimate): Typical range $5-10\%$ 3. Expense Analysis Operating Expenses (OpEx): Property Taxes Insurance Utilities (if paid by owner) Repairs & Maintenance (R&M): Estimate $5-10\%$ of EGI Property Management: Estimate $8-12\%$ of EGI Advertising/Marketing HOA fees (if applicable) Reserves for Replacements (CapEx): Estimate $\$250-500$/unit/year or $5-10\%$ of EGI Net Operating Income (NOI): Formula: $NOI = EGI - \text{Total Operating Expenses}$ Excludes debt service and income taxes. 4. Financing & Debt Service Loan Terms: Loan Amount (LTV: Loan-to-Value) Interest Rate (Fixed/Variable) Amortization Period Loan Constant (for quick debt service calculation) Annual Debt Service (ADS): Formula: Mortgage Payment $P = L \frac{i(1+i)^n}{(1+i)^n - 1}$ (where $L$=Loan, $i$=monthly rate, $n$=total months) $\times 12$ 5. Key Performance Metrics (KPIs) Capitalization Rate (Cap Rate): Formula: $Cap Rate = \frac{NOI}{\text{Property Value}}$ Indicates return on investment if purchased with all cash. Cash-on-Cash Return (CoC): Formula: $CoC = \frac{Annual Cash Flow Before Tax}{\text{Initial Cash Invested}}$ Annual Cash Flow Before Tax $= NOI - ADS$ Debt Coverage Ratio (DCR): Formula: $DCR = \frac{NOI}{ADS}$ Lenders typically require $DCR > 1.20$ Gross Rent Multiplier (GRM): Formula: $GRM = \frac{\text{Property Value}}{PGI}$ Used for quick valuation comparisons, especially for residential. Return on Investment (ROI): General Formula: $ROI = \frac{(\text{Gain from Investment} - \text{Cost of Investment})}{\text{Cost of Investment}}$ Internal Rate of Return (IRR) & Net Present Value (NPV): Advanced metrics for multi-year projections. Requires cash flow projections for holding period and sale. 6. Financial Projections & Scenarios Holding Period Analysis: Annual cash flow projections (Year 1, 2, 3, 5, 10) Rent growth assumptions ($2-4\%$ per year) Expense growth assumptions ($2-3\%$ per year) Sale Analysis (Reversion): Estimated Sale Price: (NOI at sale / Cap Rate at sale) Selling Costs: Broker commissions, closing costs ($6-10\%$ of sale price) Loan Payoff Sensitivity Analysis (What-If Scenarios): Varying vacancy rates (e.g., $5\%, 10\%, 15\%$) Different rent growth rates Impact of higher interest rates Changes in Cap Rate at sale 7. Report Structure Checklist Executive Summary Property Description & Location Analysis Market Analysis (Supply/Demand, Comps) Financial Analysis (Pro Forma, Assumptions) Key Investment Metrics (Cap Rate, CoC, DCR, IRR) Risk Analysis & Mitigation Strategies Recommendation (Buy/Hold/Sell, Offer Price) Appendices (Photos, Comps, Lease Agreements) 8. Common Assumptions & Benchmarks Item Typical Range / Benchmark Vacancy Rate $5-10\%$ R&M $5-10\%$ of EGI Property Management $8-12\%$ of EGI CapEx Reserves $\$250-500$/unit/year Rent Growth $2-4\%$ annually Expense Growth $2-3\%$ annually DCR (Lender Min) $1.20$