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HOW TO ANALYZE REAL ESTATE DEALS LIKE A PRO

“There is no staff. I make all the investment decisions and I do all my own analysis.”

— Warren Buffett

I’ve invested in great deals and seen big returns.

I’ve also lost money.

Through these experiences, I’ve learned a lot.

Today, I want to share some of my secrets.

By reading this blog, you can learn how to grow both your net worth and income.

You’ll also learn how to analyze any deal, no matter the asset class.

Let’s jump into it!

1. Market

In my book Fire Yourself, I have this funnel chart that I use to analyze any deal.

At the top, you’ve got the market.

The operator is in the middle.

All the way at the bottom is the deal.

Typically, this comes to us in reverse order.

You might see advice like that pop up on deal lists.

The deal could look awesome and promise a lot of money

But it’s important to take a step back and look at the market first.

The market varies depending on where the deal is located.

For example: Senior housing in Fayetteville, Arkansas.

What is it like to own a senior housing facility there?

Is the government favorable to senior housing businesses?

How long will it take to break ground?

You should ask similar questions no matter the asset.

If you invest in car washes, ask how many car washes per capita there are.

In multifamily, look into the rents and how the government treats landlords.

That’s why we don’t own many properties in California.

It’s harder to do business there and it’s a shrinking market.

Keep your eyes peeled for similar setbacks!

There’s a huge difference between a shrinking market versus a growing market.

If you invest in a great market, you can even have a mediocre operator and an okay deal.

The rising ride will raise all ships.

A great market is a great market.

According to this examination of entrepreneurship in emerging markets, signs of a great market are:

·       Strong growth potential

·       Low labor costs

·       Weak competition

·       Low government regulation1

If you’re in the right area, you can afford to do some things wrong.

That’s why I love picking growing, favorable markets.

We don’t just invest in multifamily, either.

At Bronson Equity, we look at population growth, job growth, and income growth.

But at the end of the day, it’s all about that growth market.

Is it favorable to own there or not?

2. Operator

The second thing you need to look at is the operator.

Who is the person or group that’s in the driver’s seat?

If you have a great operator, they will communicate well.

They will work together with you.

They will (hopefully!) give great results.

As a passive investor, it’s really important to ask good questions.

I try to talk to everybody I can before I invest.

One great question is: Have you ever lost money?

Or: Has anything ever gone wrong in a deal?

The point isn’t to judge them for losing money or making a mistake.

If they’ve done those things, that’s not the end of the world.

Instead, these questions help you find honest people.

If they answer these questions honestly, you get the sense you’re speaking with the real person.

When someone doesn’t have an answer, they’re either not being honest or inexperienced.

You should also make sure your values line up.

Going to their website is a great way to start this process.

Check what they say about communication, performance, and the operator’s track record.

But if you can, speaking person-to-person is a great call.

3. Deal

Now that you’ve looked at the market and the operator, it’s finally time to look at the deal.

The deal is the last thing you should look at in an investment.

Now you need to start asking yourself:

Does this deal make sense?

How can I make money?

What are two ways I can lose money?

And if you think you’ve found the perfect deal where you won’t lose any money… you’re wrong.

There are always ways you can lose money.

This is especially the case if you invest in short-term deals.

According to this article from the Financial Analysts Journal, you are less likely to lose money in long-term deals.

However, if you do experience a loss in long-term deals, that loss will be significantly more.2

That’s why you should ask your operators:

What is the primary risk?

What can cause a loss of capital?

They should absolutely have an answer for that.

Warren Buffett himself says to only invest in deals you understand.

You need to comprehend how a deal works, how you’re going to make money, and how you’re going to lose money.

Any and all facets of a deal are on the table, really.

And if you don’t understand a deal, it’s okay to move on and find something else.

You could also educate yourself more on the deal.

As a summary: You need to start out any deal looking at the market first.

Then, look at the operator, their values, and where they’re headed.

Finally, you can look at the specific deal and figure out if it’s the right fit for you.

Now I want to hear from you!

What will you do as your first step in your next deal?

Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.

If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.

Check out my bestselling book on Amazon!

Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.

Works Cited

1. P. Bergey. “Entrepreneurship in emerging markets.” IEEE Engineering Management Review, 42 (2014): 2-2. https://doi.org/10.1109/EMR.2014.2314538.

2. M. Kritzman. “What Practitioners Need to Know . . . About Time Diversification (corrected).” Financial Analysts Journal, 71 (2015): 29 – 34. https://doi.org/10.2469/faj.v71.n1.4

Bronson Hill

Bronson used to work as a consultant for a medical device company but switched to investing in apartment buildings to make his money work for him. He started with a single rental property that made good money and, after some advice from a family member, moved into bigger real estate projects. Now, he's all about helping others get into this kind of investment to earn money without having to work all the time. When he's not dealing with investments, Bronson loves to travel, write songs, stay active, and help fight modern slavery through his work with Dressember. He believes in working smarter, not harder, and wants to share how that's possible with everyone.

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