reaperinvest Investment Property Analysis
When to Use This Skill
Use this skill when you need to:
- Analyze a rental property's financial viability before purchasing
- Calculate cash flow, cap rate, cash-on-cash return, and ROI projections
- Compare multiple investment properties using consistent metrics
- Present an investment analysis to a buyer client or for your own portfolio
DO NOT use this skill for commercial real estate analysis, REIT investing, or property appraisals. This is for residential rental property investment analysis.
Core Principle
INVESTMENT DECISIONS ARE MADE ON NUMBERS, NOT FEELINGS — RUN THE ANALYSIS WITH CONSERVATIVE ASSUMPTIONS AND LET THE MATH TELL YOU WHETHER TO BUY.
Phase 1: Property Data
Required Inputs
| Input | What to Ask | Default |
|---|---|---|
| Property address | "What property are you analyzing?" | No default — must be provided |
| Purchase price | "What is the asking or offer price?" | No default — must be provided |
| Expected rent | "What is the estimated monthly rent?" | No default — research comps |
| Down payment | "How much are you putting down?" | 25% (investment property standard) |
| Interest rate | "What mortgage rate are you estimating?" | Current market rate |
| Property taxes | "Annual property tax amount?" | 1.2% of purchase price |
| Insurance | "Annual insurance cost?" | $1,200/year |
| Current condition | "Does it need repairs? Estimated rehab cost?" | Move-in ready |
GATE: Confirm all financial inputs before running calculations.
Phase 2: Financial Analysis
Monthly Cash Flow Analysis
## Cash Flow Analysis — [Property Address]
### Income
| Source | Monthly | Annual |
|--------|---------|--------|
| Gross rent | $[X] | $[X] |
| Other income (laundry, parking, storage) | $[X] | $[X] |
| **Gross income** | **$[X]** | **$[X]** |
### Vacancy Allowance
| Factor | Rate | Monthly | Annual |
|--------|------|---------|--------|
| Vacancy | 5-8% | -$[X] | -$[X] |
| **Effective gross income** | | **$[X]** | **$[X]** |
### Operating Expenses
| Expense | Monthly | Annual |
|---------|---------|--------|
| Property taxes | $[X] | $[X] |
| Insurance | $[X] | $[X] |
| Property management (8-10%) | $[X] | $[X] |
| Maintenance reserve (5-10%) | $[X] | $[X] |
| Capital expenditure reserve (5%) | $[X] | $[X] |
| HOA fees | $[X] | $[X] |
| Utilities (if landlord-paid) | $[X] | $[X] |
| **Total operating expenses** | **$[X]** | **$[X]** |
### Net Operating Income (NOI)
**NOI = Effective Gross Income - Operating Expenses**
**NOI = $[X]/year**
### Debt Service
| Factor | Amount |
|--------|--------|
| Loan amount | $[X] |
| Interest rate | [X]% |
| Loan term | 30 years |
| **Monthly payment (P&I)** | **$[X]** |
| **Annual debt service** | **$[X]** |
### Monthly Cash Flow
**Cash flow = NOI/12 - Monthly debt service = $[X]/month**
**Annual cash flow = $[X]**
Phase 3: Return Metrics
Key Metrics
## Investment Metrics — [Property Address]
### Cap Rate
NOI / Purchase Price = $[X] / $[X] = [X]%
[Target: 5-10% depending on market]
### Cash-on-Cash Return
Annual Cash Flow / Total Cash Invested = $[X] / $[X] = [X]%
[Target: 8-12% for a strong deal]
### Total Cash Invested
| Item | Amount |
|------|--------|
| Down payment | $[X] |
| Closing costs (3-5%) | $[X] |
| Rehab/repairs | $[X] |
| Reserves (3 months expenses) | $[X] |
| **Total cash needed** | **$[X]** |
### Gross Rent Multiplier (GRM)
Purchase Price / Annual Gross Rent = [X]
[Lower is better — under 15 is typically favorable]
### 1% Rule Check
Monthly rent / Purchase price = [X]%
[Target: 1% or higher — $2,000/month rent on $200K purchase]
### Debt Service Coverage Ratio (DSCR)
NOI / Annual Debt Service = [X]
[Target: 1.25+ for comfortable coverage]
Phase 4: Scenario Analysis
Scenario Comparison
## Scenarios — [Property Address]
| Scenario | Rent | Vacancy | Expenses | Cash Flow | CoC Return |
|----------|------|---------|----------|-----------|------------|
| Conservative | $[X] | 10% | High | $[X] | [X]% |
| Base case | $[X] | 7% | Expected | $[X] | [X]% |
| Optimistic | $[X] | 5% | Low | $[X] | [X]% |
5-Year Projection
| Year | Rent (2% increase) | Expenses (3% increase) | Cash Flow | Equity Buildup |
|---|---|---|---|---|
| 1 | $[X] | $[X] | $[X] | $[X] |
| 2 | $[X] | $[X] | $[X] | $[X] |
| 3 | $[X] | $[X] | $[X] | $[X] |
| 4 | $[X] | $[X] | $[X] | $[X] |
| 5 | $[X] | $[X] | $[X] | $[X] |
Investment Decision Summary
## Recommendation
**Property:** [Address]
**Purchase price:** $[X]
**Total investment:** $[X]
**Monthly cash flow (base case):** $[X]
**Cash-on-cash return:** [X]%
**Cap rate:** [X]%
**Verdict:** [Buy / Pass / Negotiate to $X]
**Key risks:**
- [Risk 1]
- [Risk 2]
**Key strengths:**
- [Strength 1]
- [Strength 2]
Anti-Patterns
- Ignoring vacancy — assuming 100% occupancy inflates returns. Always factor 5-10% vacancy.
- Forgetting property management — even if you self-manage, include the cost. Your time has value, and you may hire out later.
- No maintenance reserves — properties require ongoing repairs. Budget 5-10% of gross rent minimum.
- Using optimistic rent estimates — base analysis on current market comps, not "what it could rent for after upgrades."
- Ignoring capital expenditures — roofs, HVAC, and water heaters are not "if" expenses, they are "when" expenses.
- Falling in love with the property — investment decisions are math. If the numbers do not work, walk away.
Recovery
- Numbers are borderline: Negotiate a lower purchase price. Even $10-20K off can meaningfully change returns.
- Negative cash flow at current price: Calculate the break-even purchase price and use it as your maximum offer.
- No comparable rental data: Check Zillow rent estimates, Rentometer, or call local property managers for market rent opinions.
- Unexpected repair costs discovered: Adjust total cash invested and recalculate all return metrics before proceeding.
- Market rent declining: Factor declining rents into your scenarios. If the deal only works with rising rents, it is too risky.