You know what a property is worth. Now you need to answer a different question: at this price, with these numbers, should you actually buy it? This module teaches you how to run a full deal analysis — the numbers, the metrics, and the decision framework that separates disciplined investors from gamblers.
In Module 4 you learned how to determine what a property is worth. That answered the question: "What is the fair market value of this asset?" But knowing fair value is only the starting point. The real question every investor must answer before writing a check is: "At this price and with these numbers, does this deal actually work?"
The difference between investing and gambling is this: gamblers rely on hope and intuition. Investors rely on numbers. A beautiful property in a hot neighborhood can still be a terrible investment at the wrong price. A beat-up building in an unglamorous area can be a spectacular deal if the numbers are right. The numbers are always right or wrong — the property's appearance is irrelevant.
"Every experienced investor I have ever met has a story about a deal they passed on because the numbers didn't work — a deal that looked great on the surface. And every one of them is grateful they passed. The discipline to say no when the numbers say no is what keeps you in business long enough to find the deals that actually work."
Deal analysis is not complicated. It requires five numbers, four metrics, and a decision framework. By the end of this module you will know all three — and you will have a downloadable spreadsheet that does the calculations for you on any property you analyze.
Module 4 answered: What is this property worth? (Valuation — comps, income approach, ARV)
Module 5 answers: Should I buy it at this price? (Deal analysis — cash flow, NOI, cap rate, cash-on-cash, the 70% rule)
You need both. Valuation tells you if you're overpaying. Deal analysis tells you if the investment actually performs.
There are dozens of metrics investors use to analyze real estate. But five of them appear in virtually every deal conversation, every underwriting spreadsheet, and every lender's analysis. Learn these five and you can participate in any real estate investment discussion at any level.
Total rent collected if every unit is full and paying. This is the ceiling — the best-case income scenario. Always start here.
Income after all operating costs are paid — but before the mortgage. NOI is the most important number in commercial real estate. It determines property value.
What's left after the mortgage is paid. Positive cash flow means the property pays you. Negative means you're subsidizing it from your own pocket every month.
The return on the property as if you bought it all cash — no mortgage. Used to compare properties across markets regardless of financing. Also used to determine value.
The actual return on the cash you invested — your down payment. This is the metric most relevant to your real-world experience as an investor because it accounts for your mortgage.
Cap rate ignores financing — it's the property's return as if you paid all cash. Cash-on-cash return reflects your actual leveraged return with a mortgage. A property with a 6.5% cap rate and 25% down can produce a very different cash-on-cash return depending on your interest rate. Both metrics matter. Neither one alone tells the full story.
You already know this property. Now let's run the complete deal analysis on it — the same numbers, but organized the way a professional investor would present them.
| Line Item | Monthly | Annual |
|---|---|---|
| INCOME | ||
| 3 Rented Units × $2,500/month | $7,500 | $90,000 |
| Your Unit (owner-occupied) | $0 | $0 |
| Total Rental Income | $7,500 | $90,000 |
| OPERATING EXPENSES (before mortgage) | ||
| Property Taxes | $900 | $10,800 |
| Insurance | $350 | $4,200 |
| Maintenance Reserve (5%) | $375 | $4,500 |
| Vacancy Reserve (5%) | $375 | $4,500 |
| Total Operating Expenses | $2,000 | $24,000 |
| NET OPERATING INCOME (NOI) | $5,500 | $66,000 |
| DEBT SERVICE | ||
| Mortgage ($850K @ 6.5% / 30yr) | $5,373 | $64,471 |
| MONTHLY CASH FLOW | $127 | $1,529 |
| Metric | Value | What It Means |
|---|---|---|
| Cap Rate — Owner-Occupied (3 rented units only — actual income collected) | 6.6% | Realistic return based on what you actually collect today |
| Cap Rate — Fully Rented (all 4 units at market rent — used for valuation) | 9.3% | Full earning potential if you move out and rent your unit too |
| Cash-on-Cash Return | 1.0% | Low — but you're living for free |
| Monthly Cash Flow | $127 | Property pays you while you live in it |
| Effective Housing Cost | $0 | Your personal housing expense = zero |
| Year 1 Loan Paydown | $9,501 | Tenants build your equity monthly |
| Combined Annual Return | $41,030 | 27.4% on $150,000 invested |
The owner-occupied cap rate (6.6%) reflects actual income collected — only 3 units are rented since you live in the 4th. The fully-rented cap rate (9.3%) shows what the property would produce if all 4 units were rented at market rent — which is what matters for valuation purposes and for when you eventually move out and rent your unit. Both numbers are useful. The 6.6% tells you your real-world return today. The 9.3% tells you the property's long-term earning potential.
Now let's analyze a larger pure investment property — no owner-occupancy, professional management included, commercial loan at a slightly higher rate. This is what a typical mid-size multifamily deal looks like on paper.
| Line Item | Monthly | Annual |
|---|---|---|
| INCOME | ||
| 8 Units × $1,950/month | $15,600 | $187,200 |
| OPERATING EXPENSES (before mortgage) | ||
| Property Taxes | $1,600 | $19,200 |
| Insurance | $700 | $8,400 |
| Property Management (8%) | $1,248 | $14,976 |
| Maintenance Reserve (5%) | $780 | $9,360 |
| Vacancy Reserve (5%) | $780 | $9,360 |
| CapEx Reserve (5%) | $780 | $9,360 |
| Total Operating Expenses | $5,888 | $70,656 |
| NET OPERATING INCOME (NOI) | $9,712 | $116,544 |
| DEBT SERVICE | ||
| Mortgage ($1,312,500 @ 7.0% / 30yr) | $8,732 | $104,786 |
| MONTHLY CASH FLOW | $980 | $11,759 |
| Metric | Value | What It Means |
|---|---|---|
| Cap Rate | 6.66% | Solid for a mid-size multifamily deal |
| Cash-on-Cash Return | 2.69% | Modest — typical at today's commercial rates |
| Monthly Cash Flow | $980 | $980/month profit deposited every month |
| Year 1 Loan Paydown | $13,333 | Tenants reducing your loan balance |
| Combined Annual Return | $77,591 | 17.7% on $437,500 invested |
| Income Approach Value @ 6.5% | $1,793,000 | Property worth more than purchase price ✅ |
The 8-unit produces $980/month in cash flow vs. $127 on the fourplex — but its cash-on-cash return is only 2.69% vs. 1.0%. That's because it required $437,500 down vs. $150,000. More cash in = lower percentage return on that cash, even if total dollars are higher. This is why cash-on-cash return must always be read alongside total dollars — and why the combined return including appreciation and loan paydown tells the fuller story.
Peter Harris from Commercial Property Advisors walks through his 3-step deal evaluation system — gathering property information, calculating the key metrics (NOI, cash flow, cap rate, cash-on-cash), and applying a "go or no-go" decision framework. This is exactly what Lesson 2 teaches, shown by a seasoned professional on a real deal. Watch this and the five metrics will lock in permanently.
Peter Harris walks through his complete 3-step multifamily evaluation system — gathering property data, calculating NOI, cash flow, cash-on-cash return and cap rate, then applying a go/no-go decision framework. Practical, fast, and directly applicable to both examples in this module.
Commercial Property Advisors · YouTube 2024
When you're evaluating a large volume of potential deals — especially in wholesaling, fix-and-flip investing, or BRRRR strategy — you can't run a full analysis on every single property. You need a quick filter to screen deals in or out before doing the deep dive. That's what the 70% rule is for.
The rule says: your all-in cost — what you pay for the property plus what you spend to repair it — should be no more than 70% of the After Repair Value. The remaining 30% covers closing costs, holding costs, financing, and your profit margin.
Example: A distressed property has an ARV of $300,000. Estimated repairs are $45,000.
Maximum offer = ($300,000 × 70%) − $45,000
Maximum offer = $210,000 − $45,000 = $165,000
If the seller is asking $200,000 — you pass. If they'll accept $155,000 — you have a deal with margin to spare.
The 70% rule is a fast screening tool, not a complete analysis. It tells you quickly whether a deal is worth investigating further. Once a deal passes the 70% filter, you still need to run a full analysis — verify ARV with real comps, get actual repair estimates, and calculate your full cost and return. Investors who rely only on the 70% rule without deeper analysis get burned regularly. Use it to screen, then analyze what survives.
The 70% rule is primarily used for fix-and-flip and wholesale deals on single-family and small multifamily residential properties. It does not apply to buy-and-hold rental analysis, commercial deals, or new construction. For rental properties, you use NOI, cap rate, and cash-on-cash return — not the 70% rule. Understanding which tool to use in which situation is what separates sophisticated investors from beginners who apply rules blindly.
Running the numbers is a skill. Knowing what the numbers mean — and having the discipline to act on them — is a different skill. This lesson is about building your personal decision framework so you know exactly what you're looking for before you ever start analyzing a deal.
Every investor has different goals, different markets, and different risk tolerances. There is no universal "good deal" threshold that applies to everyone everywhere. But here are the benchmarks most experienced investors use as starting points:
| Metric | Minimum Target | Strong Deal | Notes |
|---|---|---|---|
| Cap Rate | 5–6% | 7%+ | Varies significantly by market and asset class |
| Cash-on-Cash Return | 6–8% | 10%+ | Higher rates mean tighter cash flow today |
| Monthly Cash Flow | $100/unit | $200+/unit | Rule of thumb — not universal |
| Break-Even Occupancy | Below 85% | Below 75% | % of units needed to cover all expenses |
| 70% Rule (flip/wholesale) | At or below 70% | Below 65% | More room = more profit margin and safety |
At current interest rates (6.5–7%+), it is genuinely difficult to hit 8–10% cash-on-cash returns on leveraged deals in most markets. Many experienced investors are currently accepting 2–4% cash-on-cash on strong properties in appreciation markets — banking on the combined return including NOI growth, appreciation, and loan paydown. Know what market you're in and what you're actually buying. Don't chase a number that the market won't support.
The most important skill in deal analysis is knowing when a deal doesn't work — and having the discipline to say no. Here are the clearest signals to walk away:
Unless you have a very specific value-add plan and timeline, a property that requires you to write a check every month to cover expenses is not an investment — it's a liability.
If a seller presents expenses that are unrealistically low or income that can't be verified with actual leases and bank statements — walk away. Pro formas lie. Actual financials tell the truth.
If the purchase price significantly exceeds what the income approach or comps support — you're paying for hope, not value. The market will not reward overpaying no matter how good the property looks.
If you need 95% occupancy just to cover all expenses, one or two vacant units puts you in the red. A safe deal can withstand vacancies without crisis.
"There is no deal so good that you can't walk away from it. And there's no shortage of deals — there will always be another one. The investors who get into serious trouble are the ones who fall in love with a property and start bending their criteria to make the numbers work. The numbers either work or they don't. Your job is to find the ones that do."
This video walks through a 10-unit apartment building deal from start to finish — income, vacancy, operating expenses, NOI, cap rate, debt service, and cash flow. Then it shows something powerful: what happens to all those numbers when you raise rents from $1,000 to $1,500/unit. The NOI nearly doubles. The cap rate jumps from 5.4% to 10.8%. This is the value-add principle from Module 4 in live deal analysis form — and it directly mirrors the 8-unit example in this module.
A clean, beginner-friendly walkthrough of multifamily deal analysis — income, vacancy, NOI, cap rate, debt service, and cash flow. The value-add section is particularly powerful: watch how raising rents from $1,000 to $1,500/unit transforms every metric in the deal. This is exactly what Module 4 taught about NOI driving property value — now applied to a live deal.
Teifke Real Estate · YouTube 2023
Plug in any property's numbers and every metric calculates automatically — NOI, cap rate, cash flow, cash-on-cash return, combined annual return, and more. Includes both module examples pre-loaded, plus a blank tab for your own deals. Blue cells = your inputs. Everything else calculates.
BiggerPockets Rookie — 4 Real Estate Calculations Every Investor Should Know
NOI, cap rate, cash-on-cash return and gross rent multiplier explained clearly for beginners — with worked examples. Great reference to bookmark and return to when running your own deals.
RE Mentor / David Lindall — How to Analyze a Multifamily Deal in 5 Minutes (Like a Pro)
Covers cap rate, cash-on-cash return, and the debt coverage ratio — the three metrics lenders, investors, and sponsors all care about. Introduces the "Trinity" formula (cap 8%+, CoC 12%+, DCR 1.6+) as a conservative investing standard. Excellent framework for serious deal screening.
BiggerPockets — How To Analyze A Rental Property (The Quick & Dirty Way)
Brandon Turner's 10-minute walkthrough of rental property analysis. Great for practicing the skill quickly on any deal you find online.
Chandler David Smith — How To Analyze a Multi-Family Rental Property (12-unit live walkthrough)
Chandler walks through a real 12-unit apartment building deal from the MLS — area, photos, rents, expenses, and a full cash-on-cash analysis. He ultimately passes on the deal and explains exactly why. A rare and honest example of disciplined deal screening in action. Note: uses 2020 interest rates — the framework and decision process apply regardless of rate.
BiggerPockets / Brandon Turner — The 2%, 50% & 70% Rules
Covers all three quick-screen rules in one video — including when they work and when they don't. Essential context for understanding the 70% rule's limitations alongside its usefulness.
InvestFourMore — How Does the 70% Rule Work When Analyzing House Flips?
An honest deep dive into the 70% rule with real flip examples — including cases where the rule works well and cases where it leads investors astray. Refreshingly balanced perspective.
5 questions to test your deal analysis skills.
1. A rental property generates $120,000 in annual gross rent. After all operating expenses (taxes, insurance, management, maintenance, vacancy), the NOI is $78,000. The purchase price is $1,100,000. What is the cap rate?
2. An investor buys a property for $500,000 with 20% down ($100,000). The annual cash flow after all expenses including the mortgage is $7,500. What is the cash-on-cash return?
3. Using the 70% rule: A distressed property has an ARV of $350,000. Estimated repair costs are $60,000. What is the maximum offer price an investor should make?
4. What is the key difference between cap rate and cash-on-cash return?
5. A property shows $180,000 in annual gross rent on the seller's pro forma, but actual bank statements only show $140,000 collected last year. The seller explains the difference as "below market rents that are being raised." What should you do?
Deal analysis is the skill that turns knowledge into action. An agent who can run numbers helps investor clients make better decisions — and earns referrals for life. A property manager who understands NOI advises owners on how to increase property value through operational improvements. A wholesaler who masters the 70% rule finds deals others miss and builds a reputation as someone who brings real opportunity. A lender who understands cap rates and cash flow underwrites deals with confidence. Whatever path you're on, this module directly increases your ability to add value to every conversation you enter.