“Make a decision to be successful right now. Most people never decide to be wealthy and that is why they retire poor.” – Brian Tracy
Property analysis is one of the areas of apartment and commercial real estate investing that separates the professionals from the rest of the crowd. It is also one of the things that can make you a lot of money and build your wealth faster than any other investment when done properly. Of course, this is my humble opinion – and after all – every investment begins with some form of property analysis, right?
Many beginning investors begin with some sort of property analysis software, or a spreadsheet, or their own formulas. They want to immediately start plugging in the numbers, start analyzing them, ask themselves how they might improve the income or reduce expenses, etc. This is the wrong approach, and one that gets folks into trouble. Why? Because the VERY first thing that a professional investor should do when analyzing the numbers is this: Verify the numbers in the first place.
Why? Because you want to make sure that you are working with ACTUAL numbers from the property versus proforma numbers that the owner or broker may have provided you. Remember that a proforma is just someone’s guess of how the property might operate, given that everything ran perfectly, there are no or few vacancies, no unexpected maintenance issues, and so on. Well, as they say, that is when Mr. Murphy of Murphy’s Law comes knocking on your door. Listen, it pays to start off with getting the actual rents, the actual expenses, the actual financing you might be looking at, and to ensure they are all accurate before starting your property analysis.
This is simple to do. Simply ask for the owners past 2 years of taxes for the property. Now don’t worry if some of the numbers on the profit and loss report are a bit off from the taxes, but ensure that they are in-line with the financials that you received.
This sounds a lot like common sense but many investors take the numbers on face value and sometimes make decisions based on these “BAD” numbers. Decisions based on bad numbers will cost you a lot of money and aggravation. In other words, make sure the numbers are accurate in the first place before making decisions based on them. By the way, I found this out the hard way!
By: Darin Garman
About the Author:
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