What has always fascinated me about real estate investors is how differently we analyze rental properties. While we all use (mostly) the same ratios and numbers, the sheer number of available calculators, spreadsheets and other analysis tools is incredible. And it often takes a lot of trial and error to find the method or tool that works well for you.
I used to analyze all my rentals using an Excel spreadsheet I made myself. It did a good job for a time. But in the last year or so, I found myself spending less time at my computer and more time on the go with my cellphone and tablet. I needed something that was just as powerful as my spreadsheet, but something I could use on my mobile devices.
When I couldn’t find an existing mobile app that worked for me, I created DealCheck: Rentals, a powerful app for quickly analyzing investment properties on the go. I gradually stopped using my spreadsheet altogether and now exclusively use DealCheck to analyze all rental properties I come across.
Here is how this app works:
Customizing Your Purchase Criteria
You can download DealCheck: Rentals for free for both iOS and Android (it runs on phones and tablets).
Once you have it installed, I suggest you specify your purchase criteria to help you quickly figure out if the deal is worth pursuing or not. You don’t have to do this, but it will save you time down the road. You can do this by going to the Menu (button at the top left) and then My Criteria.
You’ll see a list of the things investors typically look for in rental properties. The default pre-sets are a good place to start, but you should definitely look over the following:
- Purchase Price and Total Cash Needed: We all have different financials and available cash reserves, so these two numbers will depend on what you can afford. Purchase Price is self-explanatory. Total Cash Needed includes all of the up-front costs associated with purchasing a property, including the down payment, closing costs and any rehab costs.
- Cash Flow: I like to have at least $150 in monthly cash flow, after all expenses (including the mortgage payment) have been paid. You may have a different number in mind, but it’s generally better not to go below $100.
- Cap Rate: The cap rate for a property is calculated by diving the Net Operating Income (NOI) by the Purchase Price. You are probably familiar with it, as it’s one of the most widely used metrics to evaluate deals. The cap rate can vary widely across different markets, so it’s hard to recommend a number that will work for everyone. I like mine at least 6-8%.
- Cash on Cash and ROI: The cap rate doesn’t always show the full picture, as it doesn’t take into account the financing you use to acquire the property and the money you spend on closing and rehab. This is why most investors I know usually use the Cash on Cash (COC) return and Return on Investment (ROI) when analyzing their deals as well.
There are no right or wrong answers when choosing your purchase criteria. The most important thing to remember is that it should align with your short, medium and long-term real estate goals and help you find rentals that will benefit you for years to come.
Adding a New Property
After your purchase criteria is defined, you can do the fun stuff – analyzing an actual deal!
You can add one from the home screen using the + icon at the top right. All of the information is optional, but if you want to look up the home on the map, you will need to enter its address.
After creating a deal, you can go to the Worksheet to start entering the information about this deal. The Worksheet covers all of the details in one place, including purchase information, financing (if you’re using it), closing and rehab costs, as well as the operating income and expenses.
This is by far the most important part, as the numbers you enter will directly affect all of the calculations. The app gives you an option to estimate many of the totals like closing costs, rehab costs and expenses, although I prefer to itemize them. It does take a little bit longer and requires more research, but makes your calculations more accurate.
At the end of the Worksheet, don’t forget to look over the assumptions, including vacancy, appreciation, selling costs, etc. The default values will work for most markets, but you should change them if they seem off. If you are new to investing, being more conservative with things like the vacancy rate is definitely a good idea.
Getting to the Analysis
Once the Worksheet is filled in, you can tap the clipboard icon at the top right to view the deal’s Summary page.
This is where you will find the full breakdown of the deal. The purchase section shows the new mortgage information (if you are using financing) and calculates the total cash you will need to close.
Right below that is the operation section, which breaks down your monthly/yearly income and expenses, calculates your mortgage payment and NOI and shows you how much actual cash flow you will have each month and year.
Further down are the property’s returns, including the cap rate, cash on cash (COC) return, return on investment (ROI), rent to value and the gross rent multiplier. You may not use all of these to compare deals, but the cap rate, COC and ROI are definitely worth checking.
If you entered your purchase criteria earlier, you will see a small green or red icon next to some of the items on the Summary page. These indicate whether this deal passed (green) or failed (red) the criteria you specified.
This helps you quickly see where the problem lies and gives you the opportunity to work on adjusting the deal to meet all of your criteria. Or perhaps, the numbers are too far off and you decide that this deal isn’t worth pursuing further.
Viewing Long-Term Projections
If you plan to hold on to the rental for a while, you will find the Projections screen extremely useful. It shows how the property will perform from year 1, all the way out to year 35.
In addition to projecting your cash flow and returns, this screen will also show you equity accumulation, including how the property value and mortgage balance will change over time.
You can also see the tax benefits you would get from owning this property, such as the depreciation and mortgage interest write-offs.
When viewing this screen I like to focus on what the numbers will look like after the mortgage has been paid off, typically after year 30. This gives me an idea for the cash flow I can expect when owning the home free and clear.
Adding Extra Info and Sharing Deals
DealCheck: Rentals has a few additional features that you may find useful when analyzing and comparing deals.
You can add pictures and notes to each of your properties, which can come in handy when you actually visit the home during an open house or inspection. Then later at the office or at home you can reference back to these to help you make purchase decisions.
If you entered the home’s address, you can also view it on the map right from the app and scope out the neighborhood with Google’s Street View. I’ve done that several times when buying out-of-state rentals without actually visiting the area in-person.
And finally, you have the option to share the deal with your partners, investors or other interested parties. For example, you can send the information to your lender to help him or her draft up the paperwork for the loan.
Using Technology To Your Advantage
I am a huge believer in using technology to simply our lives, including finding good real estate deals. Since we find ourselves on the road so often, it would only make sense to have a powerful real estate analysis tool like DealCheck right in your pocket.
If you do decide to try DealCheck, let me know how it goes in the comments below!