How to Analyze a Real Estate Deal

Chapter 1: Why Most Approaches Fail — and What Actually Works

Every failed real estate deal has an autopsy. It usually shows a few common causes: an optimistic rent projection, a vacancy rate that assumed someone would move in the day the last tenant left, a repair estimate that was a guess scrawled on the back of a listing sheet. When the numbers are laid out after the fact, the culprit is almost never the property itself. It is the analysis, and more often than not, it was doomed before the spreadsheet was even opened.

The problem isn't that you didn't try. It's that you were told to use the wrong tools. If you've been relying on rules of thumb—the 1% rule, the 50% rule, or the idea that a 9% cap rate is "safe"—you are trying to build a financial decision on a foundation of averages that were published in a different market, for a different asset, with a different set of assumptions. This chapter is about why that common wisdom is not just unhelpful but actively dangerous, and what happens when you replace it with a framework built on the actual, provable economics of a specific property.

The False Precision of Rules of Thumb

Rules of thumb are seductive because they reduce complex decisions to a single, memorable number. But that simplicity is precisely the problem. The 1% rule, which says monthly rent should be at least 1% of the purchase price, is often cited in internet forums