As a real estate investor, using a deal analyzer can be quite useful in making lucrative deals.
It’s no secret that finding a good deal in the real estate market can be tiresome and difficult. Starting from finding properties to calculating their potential in the real estate market, to actually renting them out, one can say the list of things to consider is quite extensive. It is why a real estate deal analyzer is so crucial when investing in properties.
Table of Contents
- What Is a Deal Analyzer?
- Do Investors Need a Deal Analyzer?
- 3 Steps to Analyzing to Deal
- Top 3 Deal Analyzer Tools
- The Bottom Line
Deal analyzers were designed to aid real estate investors through every step of the investment process. From locating a potential property to comparing to similar options, there is no reason an investor shouldn’t make use of the investment tool. Keep reading to find out how a real estate deal analyzer can help, how to use it, and which ones offer the best features to investors.
What Is a Deal Analyzer?
As the name suggests, a deal analyzer is an app that helps users calculate the potential of a property as an investment property in the real estate market. In simpler terms, one can say a deal analyzer is similar to a real estate calculator. Both show you a breakdown of how much the property will cost and how much it could potentially generate in income after.
However, a deal analyzer often shows more than the cost breakdown and potential income of a property. More often than not, they can also help an investor decide on which real estate strategy would best fit the property’s location. The best deal analyzer will also compare potential deals to one another to ensure that you are choosing the most lucrative one. Overall, making use of the tool will help ensure that you chose the right property and realize a good return on investment.
Do Investors Need a Deal Analyzer?
While getting a deal analyzer is convenient, do real estate investors really need to use one? If the investor wants to buy investment properties that are sure to be lucrative, then the answer is yes. Nowadays, it would be in an investor’s best interest to use a deal analyzer. Without one, real estate investors will need to conduct their own property search and data research and calculate each metric in their investment manually.
While it’s been done effectively before real estate apps or using a real estate investment calculator gained popularity, real estate calculations are quite time-consuming and prone to human error. Doing the calculations and analyses manually can hurt your chances of finding a lucrative investment deal.
First, the calculations possibly take too long, resulting in the property no longer being available. Second, if you get the wrong data or miscalculate, you’ll be basing your investment on a false idea of how the property will perform.
If you want to invest in a lucrative vacation rental, fix and flip property, or traditional rental, using a deal analyzer is just another way to add extra insurance that your investment will be a good one.
3 Steps to Analyzing to Deal
Listed below are the different steps on how to analyze a real estate deal:
1. Finding a Location and Property
As any seasoned real estate investor will tell you, location is everything when it comes to owning a lucrative investment property. There are several things to consider when choosing the right location in your property search. The first is if you are looking for a property within your own state for easier management or one out of state with a better real estate market climate.
If you chose to buy a property within your state or city, the next thing to do is find the best neighborhood that fits your real estate strategy or rental scheme. While you may be only looking at one city, different areas in each city can be more lucrative as a traditional rental or an Airbnb rental. To find out which areas offer the best return for your real estate strategy, sign up for Mashvisor’s 7-day free trial for access to the Property Finder and Heatmap tools.
On the other hand, you can also look to invest in properties outside of your home state. In such a scenario, you will need to research which states are projected to become a lucrative real estate market. Once you’ve chosen the state, you can begin narrowing down the city and neighborhood in which you’d like to invest in.
2. Investment Property Analysis
After finding a location and property, the next step is calculating their potential in the real estate market. While there are many factors that play into how a property will perform in the market, listed below are the most important factors to account for:
A. Cash Flow
In basic terms, cash flow refers to the income a property can generate subtracted from expenses involved in maintaining the property. It is a key indicator if a property is worth investing in. Having a positive cash flow means that even after all the expenses like mortgages and repairs are accounted for, your property is still providing you with an additional income. On the other hand, a negative cash flow refers to the situation of having no money left over after all expenses are accounted for. If the expenses to maintain the property are higher than the income it can generate, then you may want to pick a different investment.
B. Cap Rate
The next thing you need to calculate when analyzing a deal is the property’s cap rate. The cap rate takes into account the potential income of the property to calculate its rate of return on the investment. Using the cash flow estimates you previously calculated, you will need to multiply that number by 12 to represent your yearly rental income.
Once you calculate your yearly rental income, you need to divide the amount by the purchase price of the property. It will give you the rate at which you will see your yearly return on your investment based on your initial investment costs. Depending on the property, cap rates may change. However, a cap rate lower than 2% should be avoided as it indicates a less-than-profitable investment.
C. Cash on Cash Returns
Another factor you need to calculate when analyzing a deal is the property’s cash on cash returns. Cap rates take into account the yearly cash flow from rental income and the overall initial price. On the other hand, cash on cash returns only consider the amount you paid upfront in cash.
To get your cash on cash return rate, you will need to divide your cash flow before taxes by the total amount of cash you invested into the property. In general, good cash on cash return ranges from 8% to 12%. It’s possible to still see a lucrative investment if the cash on cash returns rate is slightly under the said range. However, as a general rule of thumb, it’s best to aim for at least 8%.
Related: What Is a Good Cash on Cash Return?
3. Comparing Property Potential to the Market
The final step in analyzing a real estate deal is to compare the property’s performance in the real estate market. There are two things you will need to compare when it comes to real estate deals. The first is the individual properties’ performance as a traditional rental versus as a short-term rental. The next is how one property will compare to similar properties within the same neighborhood. Here is how you can compare them.
A. Performance as a Traditional or Short-Term Rental
When analyzing a real estate deal, you need to determine if the property is more lucrative than a traditional rental or an Airbnb rental. Depending on your property and real estate plans you may need different rental schemes. For example, if you are doing the BRRRR strategy, then a BRRRR calculator may help you decide how much rent you will need. Once you have an estimated rental income you need, you can calculate which rental scheme can generate that amount better.
Both traditional and short-term real estate rental strategies have the potential to make you thousands each month. However, in certain areas, one may bring in more money than the other. To ensure that you do not leave any money on the table, you need to get data on both traditional and Airbnb rentals in the area and see which one offers more income potential.
B. Real Estate Comps
After deciding which real estate strategy is more lucrative in your chosen area, it’s time to compare your potential investment properties to the rest of the real estate market. To calculate your real estate comps, you will need to get data on similar properties around the area and how they perform in the overall market.
The process can be quite difficult as there are several additional factors that come into play when comparing similar properties. For real estate comps, it’s highly suggested that you use some type of real estate calculator to ensure that you obtain all the necessary data and perform accurate calculations.
Related: Real Estate Comp Analysis in 4 Steps
Top 3 Deal Analyzer Tools
Now that you’ve seen all the factors and data points needed to fully analyze the potential of a property, you have a better understanding of why deal analyzers are so crucial. While you can manually calculate for everything mentioned above, it would be too time-consuming even for the most seasoned real estate investors. That is why many savvy real estate investors take advantage and utilize online deal analyzers and apps to their advantage.
Though there are many options in the market, these are the top 3 deal analyzer apps in the market today:
Mashvisor is currently one of the leading deal analyzers in the market. With all the options available, the platform can easily be used as a purchase or pass deal analyzer, plus so much more. From helping you narrow down locations in a city all the way to giving you reliable real estate comps, Mashvisor is essential to any investment. Starting with its property finder and heatmap, investors are able to quickly choose the most lucrative areas in a city and chose the best place to buy rental property.
Next, Mashvisor’s investment tools can be used as a deal analyzer as it allows you to see the potential costs and income you will acquire when managing that individual property. They will also give you the breakdown of the property’s potential, cap rate, cash on cash returns, price to rent ratio, occupancy rates, and other essential data points.
Lastly, Mashvisor provides its users with a downloadable Excel real estate comps file for their review. Taking data directly from the MLS and Airbnb website, Mashvisor users can be assured that the calculations are as accurate and up-to-date as they can be. With the platform’s investment and deal analyzer tools, investors are sure to make the best real estate decisions based on accurate and reliable data.
2. Roofstock Cloudhouse
Roofstock Cloudhouse is another deal analyzer that investors can use for their real estate investments. To use the platform, users simply need to plug in an address of their potential investment property. Once you’ve written down the address, the app will generate information like the age of the property, size, number of rooms, and other amenities. It will also show you the cap rate, income potential, and cash flow. While you will need to already have a potential property in mind before using Roofstock Cloudhouse, it will help you decide on which property is the most lucrative in the area.
While a slightly newer deal analyzer, RentZend’s shown potential to help investors pick the right property to invest in. You will also need a specific address to use the app, which means you will need to find potential properties by yourself. However, once you do obtain the address, RentZend gives you all the necessary data points like cap rate and potential income. They also include tax benefits in their data point listings for each property.
While the app does lean a little bit more towards being a real estate calculator, it still provides the basic benefits of a deal analyzer. Overall, using the RentZend app is still better than forgoing any type of deal analyzer tool and doing your calculations and analysis manually.
All of the above deal analyzer apps have the potential to help any investor when buying a property. Each one provides key information and data points that can guide investors to the most lucrative deals available. However, if you are looking for an all-in-one deal analyzer that can help from start to finish, Mashvisor is a clear choice.
The Bottom Line
Using a deal analyzer real estate app is crucial in any real estate investment. With lots of options available in the market, many real estate investors find it difficult to narrow down and pick a property to invest in. With a deal analyzer, not only are they able to weed out properties with low returns quicker, but they are also able to see the potential performance of their property on the market.
For the best real estate app and deal analyzer, Mashvisor is the way to go. With its data and calculations pulled from reliable sources like the MLS and Airbnb, the data and computations are unmatched. Additionally, its ability to help throughout the entire investment process means that investors can be even more confident in their decisions each step of the way. To access Mashvisor’s deal analyzer tools, sign up here.