Achieving success in real estate depends on one core skill—knowing your numbers. Whether you’re wholesaling, flipping, renting, or working with creative financing strategies, deal analysis is the foundation of every profitable decision. In this guide, we’ll break down the essential steps, tools, and rules you need to evaluate real estate deals with confidence and accuracy.
Why Getting the Numbers Right Matters
Every dollar in real estate matters. If you overestimate a property’s value or underestimate repair costs, your profits can disappear. Many beginners fall into the trap of relying on tools like Zillow or Redfin to determine values. While they’re useful for a quick overview, they often use automated algorithms or incomplete data, especially in non-disclosure states like Texas, where sales prices aren’t publicly shared.
Serious investors rely on MLS data or trusted platforms like Propelio, which offer real-time comps and lead lists. Getting the right numbers is step one to a winning deal.
The Key Terms You Need to Understand
Before we dive into deal analysis, let’s clear up the jargon you’ll encounter:
- ARV (After Repair Value): The estimated value of a property after all repairs are complete.
- PITI (Principal, Interest, Taxes, Insurance): The core components of a typical mortgage payment.
- Comps (Comparables): Sales data from similar nearby properties that help establish value.
- MAO (Maximum Allowable Offer): The most you should pay for a property to ensure a profit.
Got these locked in? Good—let’s move forward.
The 75% ARV Rule
The 75% ARV rule is a simple formula many investors use to decide if a deal makes sense. Here’s how it works:
- Calculate the ARV (typically using MLS comps).
- Multiply the ARV by 0.75 (or 70% in more conservative markets).
- Subtract estimated repair costs from that number.
The resulting figure is your MAO. This is the highest offer you should make on the property.
Example:
- ARV = $100,000
- Repairs = $20,000
- MAO = (75% x $100,000) – $20,000 = $55,000
If you can buy the property for $55,000 or less, you’ve got a deal that works.
Wholesaler Deal Analysis
Wholesaling is all about getting the property under contract at a price low enough to sell it to another investor. Your earning potential (assignment fee) lies in the difference between what the buyer is willing to pay and what the seller agrees to take.
Here’s how you approach it:
- Determine the Buyer’s Price: What will your end buyer (a flipper or landlord) pay for the property? This is typically 75% of ARV minus repairs.
- Subtract Repairs: Factor in realistic repair costs. Partnering with contractors can help solidify these numbers.
- Identify Your Offer Range: Aim to negotiate with the seller at a lower price to leave room for your profit.
Wholesaling Example
- ARV = $200,000
- Repairs = $40,000
- Buyer’s Price (75% ARV) = $150,000
- Seller agrees to $130,000.
Your assignment fee would be the difference: $150,000 (buyer’s price) – $130,000 (seller’s price) = $20,000 profit.
This formula ensures you’re pricing deals that move quickly while leaving the seller, buyer, and you happy.
Fix-and-Flip Deal Basics
Flipping houses requires deeper focus on risk. In addition to the basic 75% ARV rule, you’ll need to calculate additional costs:
- Rehab Costs: Include labor, materials, and permits. This can vary greatly, so work with reliable contractors.
- Holding Costs: Mortgage payments, utilities, taxes, and HOA fees while renovations are underway.
- Selling Costs: Realtor fees (often 6%), closing costs, and title work.
Accurate repair estimates and a buffer for unexpected expenses are critical.
Fix-and-Flip Example
You purchase a property for $100,000. You spend $30,000 on repairs and $15,000 on holding/selling/closing costs. Post-renovation, you sell the house for $180,000.
Profits = $180,000 (sale price) – $145,000 (all costs) = $35,000 profit.
The Double Cash Rule
Some deals require upfront cash investments, like catching up on mortgage payments or clearing liens. In these cases, the double cash rule ensures you’re balancing risk and reward.
The rule: Any cash you put into the deal should result in at least double that amount in equity.
Example:
You spend $10,000 to catch up back payments. The property must have at least $20,000 in equity post-closing to make the deal worth it.
The 18–24 Month Payback Rule
For buy-and-hold rental or subject-to strategies, your initial investment should be recouped through cash flow within 18–24 months.
Example:
If you invest $12,000, the property should generate at least $500/month in positive cash flow ($12,000/24 months = $500).
This ensures deals are profitable sooner rather than later.
Subject-To Deals: A Creative Solution
A subject-to deal allows you to take over the seller’s existing mortgage, keeping their loan in place. This removes the need to finance the property yourself.
Here’s an example:
Deal Structure:
- ARV = $315,000
- Existing Loan = $168,000
- Repairs = $20,000
- HOA Lien = $13,000
By covering the $33,000 in repairs and liens, you can take over the $168,000 mortgage without adding significant debt. This makes subject-to deals ideal for properties with low equity.
Final Thoughts
Real estate investing becomes easier when you simplify the process. Every deal centers around one principle: know your numbers. Whether you’re wholesaling, flipping, or pursuing creative financing, accurate math is your best friend.
With tools like MLS comps, proper negotiation strategies, and well-thought-out rules of thumb, you can make confident decisions and reduce risk. Focus on building strong networks, learning from every transaction, and keeping your analysis simple but precise.
Real estate rewards the informed and prepared. Are you ready to run the numbers and close your next deal?
