Why Deal Analysis Matters
Every successful real estate investment starts with thorough deal analysis. The numbers either work or they don't, and the only way to know is to run them before you make an offer. According to the National Association of Realtors, roughly 28% of all home sales in the U.S. go to investors, and the ones who consistently profit are those who underwrite deals carefully rather than relying on gut feeling.
A complete deal analysis answers three questions: What will this property be worth after renovation? How much will it cost to get there? And what is the maximum I should pay to still hit my profit target?
Step 1: Calculate After Repair Value (ARV)
The first step in any deal analysis is determining the ARV. Pull three to six comparable sales of renovated properties in the same area that sold within the last six months. Adjust each comp for differences in square footage, bed/bath count, lot size, and condition. The average of your adjusted comps is your ARV.
For rental properties, you will also want to calculate the property's value based on rental income using the capitalization rate (cap rate) approach. However, even for rentals, the ARV matters because it affects your refinance value in a BRRRR strategy.
Step 2: Estimate Repair and Renovation Costs
Walk the property (or analyze photos and inspection reports) to create a detailed scope of work. According to HomeAdvisor, the average cost to renovate a house ranges from $20,000 to $75,000, with full gut renovations exceeding $100,000 in many markets.
Break your rehab budget into categories: structural (foundation, roof, framing), mechanical (HVAC, electrical, plumbing), cosmetic (kitchen, bathrooms, flooring, paint), and exterior (landscaping, siding, windows). Always add a 10-15% contingency buffer for unexpected issues discovered during renovation.
- Kitchen remodel: $10,000-40,000 depending on scope
- Bathroom remodel: $5,000-20,000 per bathroom
- Roof replacement: $5,000-15,000
- HVAC system: $3,000-10,000
- Flooring: $3-12 per square foot installed
- Paint (interior): $1.50-3.50 per square foot
- Contingency buffer: 10-15% of total rehab budget
Step 3: Calculate Your Maximum Offer Price
Use the MAO (Maximum Allowable Offer) formula to determine the most you should pay. The standard formula is ARV x 70% minus repair costs. This leaves approximately 30% of ARV for your profit margin, closing costs (typically 2-5% on buy side, 6-10% on sell side), and holding costs.
For competitive markets, some investors adjust the percentage to 75% or even 80%, accepting a thinner margin in exchange for winning more deals. However, tighter margins increase your risk if costs overrun or the market shifts.
Maximum Offer = ARV x 70% - Repair Costs - Holding CostsDeal Analysis Example
Step 4: Analyze Profit and Return on Investment
Calculate your expected profit by subtracting all costs from the projected sale price (ARV). Total costs include the purchase price, repair costs, holding costs (loan interest, taxes, insurance, utilities), buying closing costs, and selling closing costs (agent commissions, transfer taxes, title fees).
Most experienced flippers target a minimum net profit of $25,000-30,000 per flip, or a 15-20% return on investment (ROI). According to ATTOM Data Solutions, the average gross profit on a flip in 2025 was approximately $67,000, though this varies dramatically by market and deal size.
Step 5: Evaluate Your Exit Strategy
Before making an offer, confirm your exit strategy. For flips, estimate your renovation timeline and the current days-on-market for comparable properties. For rentals, analyze whether the monthly rent covers your mortgage payment, taxes, insurance, and maintenance (the 1% rule suggests monthly rent should be at least 1% of the purchase price).
Always have a backup exit strategy. If the market shifts and you cannot sell at your target price, could you rent the property and still cash flow? Could you wholesale the deal to another investor? Having multiple exit options protects you against downside scenarios.
Key Takeaways
- Start every deal analysis by calculating ARV from comparable sales
- Estimate repair costs with a detailed scope of work plus 10-15% contingency
- Use the 70% rule (ARV x 70% - repairs) to determine your maximum offer
- Target a minimum of $25,000-30,000 net profit or 15-20% ROI per flip
- Always have a backup exit strategy before making an offer
Frequently Asked Questions
How long does it take to analyze a real estate deal?
Manual deal analysis typically takes 6-8 hours per property according to ATTOM Data Solutions. This includes pulling comps, making adjustments, estimating repair costs, and running profit scenarios. AI-powered tools like PropLab can automate most of this process and deliver a complete analysis in about 60 seconds.
What is a good ROI for a real estate flip?
Most experienced investors target a minimum 15-20% return on investment (ROI) for a flip deal. In dollar terms, the general rule of thumb is at least $25,000-30,000 in net profit per flip to justify the time, risk, and capital involved. Deals with lower margins are generally not worth pursuing unless you can execute very quickly.
Should I analyze deals differently for rentals vs flips?
Yes. For flips, the focus is on ARV, repair costs, and resale profit. For rentals, you also need to analyze monthly cash flow, cap rate, cash-on-cash return, and debt service coverage ratio (DSCR). However, calculating ARV is important for both strategies, especially if you plan to refinance (BRRRR method).