How to Properly Analyze an Investment Opportunity
Real estate investing, or any investing at that, requires that you take the emotions out of the picture and use a systematic, calculated approach.
Here is a simple version of the process that runs through my head every time something lands on my desk:
1. Does it increase my net worth? I am always on the hunt for ways to increase my own personal value. Buying undervalue, or spotting opportunities to increase value, are two of the best approaches to this concept. Remember, the more you are worth the more you can scale long term. Note: just because it increases my net worth doesn't mean I will do the deal.
2. Does it increase my cash flow? Naturally, the more positive cash flow one has the better. Note: just because it increases my cash flow doesn't mean I will do the deal either.
3. Do I have the financial capacity to make it work? There is little point in analyzing an investment that you cannot acquire, will leverage you too thin or that you don't have the experience and mindset to manage. I have yet to purchase a 100+ unit apartment building for example for this reason, but that day is certainly coming.
4. How much time and effort does it require? Personally, I am not looking for any more full-time jobs. I have 168 hours each week like everyone else and any investment that requires my constant physical presence or one that I cannot scale through people and/or technology, is little interest to me. Passive income is my goal, not trading my time for income.
5. What is the best use of the investment? When I closed on the 12-unit apartment building in February 2021, the primary reason I pulled the trigger was because the apartment building was best served as 12 individual condo units. I bought the property at market value (didn't increase my net worth), I bought the property at break-even cash flow (didn't increase cash flow) but it was still a great deal because I saw opportunity in what the property could be, not what it was.
Always look at the entire picture
