What I Look at When Evaluating a Deal
Most people think you need to be an expert to evaluate a real estate deal, but you really don’t. When I look at a deal, I keep it simple. I focus on a few key areas that actually drive performance. If these align, the deal is worth a deeper look. If they don’t, no amount of projections can fix it.
- Location (Market Fundamentals & Demand Drivers)
Everything starts with location, not just the property itself, but the strength of the surrounding market. I look at job growth, population trends, income levels, and overall economic expansion in the area.
I also pay close attention to supply and demand, new construction, vacancy rates, and how quickly units are being absorbed. On a more granular level, proximity to employment centers, infrastructure, retail, and schools all play a role in long-term desirability.
A deal can look great on paper, but if it’s in a market with weak or declining demand, it becomes much harder to execute successfully.
- The Plan (Value-Add & Execution Strategy)
Next, I focus on the business plan on how exactly the property’s value is going to increase. This could come from renovations, operational improvements, better management, rent growth, or adding new ancillary income streams like parking, storage, or utility reimbursements. The key is that there’s a clear, realistic strategy, not just optimistic assumptions.
I also look at whether the plan is supported by the market. Are the projected rents in line with comparable properties? Does the renovation scope match what tenants in that area are willing to pay for? Is there a defined timeline for execution?
A strong deal isn’t just about potential; it’s about having a clear and achievable path to creating value.
- The Numbers (Cash Flow, Returns & Risk)
Then I evaluate the financials, focusing on both performance and durability.
I look at Net Operating Income (NOI), cash flow, and projected returns such as cash-on-cash and IRR. But more importantly, I ask whether those numbers actually make sense.
I like to stress-test assumptions:
- What happens if rent growth is slower than expected?
- Are expenses in line with market averages?
- How sensitive is the deal to changes in interest rates or vacancy?
It’s not just about projected returns; it’s about understanding how the deal performs under different scenarios.
- The Team (Operator & Execution Track Record)
One of the most important factors is the team behind the deal. I look at their experience, past performance, and ability to execute. Have they completed similar projects? How do they handle challenges when things don’t go as planned?
I also pay attention to how aligned they are with investors, their communication, reporting, and whether they have capital in the deal themselves.
A strong operator can navigate challenges and still deliver results. A weak operator can struggle even with a great deal on paper.
At the end of the day, it’s not about overanalyzing; it’s about asking the right questions and making sure everything lines up. If you’re ever looking at an opportunity and want a second opinion, feel free to reach out. We’re always happy to take a look.
