The Math Comes First
Before you construct any offer, every lender or partner will want to see the numbers. This short but critical section lists the exact questions you must be able to answer about a deal's income, expenses, and projected returns before anyone will seriously consider funding it.
Training
- 1.
Be ready to answer the current gross income and current operating expenses of any property before presenting it to a lender or partner — these two numbers are the foundation of every other calculation.
- 2.
Obtain the proforma (projected) income from the listing agent when available, and understand exactly how that projection was calculated so you can judge whether it is realistic or inflated.
- 3.
Based on the numbers, estimate what you could borrow once the property is stabilized (using a reasonable Debt Coverage Ratio) and what you could sell it for (using a reasonable market cap rate) — these two figures define your financing ceiling and your exit value.
- 4.
Build a best estimate of repair costs and the time required to get the property ready to refinance or sell, using the formula: Cost + Repairs + Holding Costs = total capital required.
- 5.
Determine whether you will run a negative cash flow during the stabilization period, how much, and specifically where that shortfall money will come from before you commit to the deal.
- 6.
Know the property's current vacancy rate, since it directly affects both your income projections and your lender's risk assessment.
- 7.
For coach review, provide current gross income, actual operating expenses, projected NOI with its calculation and evidence, current vacancy, and a specific funding plan. Also include repairs, timing, carrying costs, debt terms, and a supported sale or refinance estimate so the reviewer can assess the complete deal.