The 5 Formulas You Need to Analyze Any Real Estate Investment

The 5 Formulas You Need to Analyze Any Real Estate Investment
Buying Real Estate



Real estate investments come in all shapes and sizes. You got flips, rental properties, commercial real estate, BRRRR (buy rehab rent refinance repeat) deals, and a dozen others. Thankfully you don’t need twenty different calculations to figure out whether any of these are good real estate deals—you only need five. These five real estate formulas are stupidly simple, don’t require a calculator (most of the time), and can be done with almost any real estate deal you come across.

If you’re trying to make a serious profit or passive income with real estate, then real estate math is about to become your best friend. Today, Tarl Yarber gives you a step-by-step guide on calculating these numbers, when to use each of them, and where novice investors usually go wrong. Calculating your real estate numbers is one of the most important steps in buying real estate, so feel free to rewind and replay as much as you’d like.

Don’t like manually calculating out numbers? We’ve got you covered. Click the link below to use any of the BiggerPockets real estate investing calculators for your next deal!

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Use the BiggerPockets Real Estate Calculators on Your Next Property:
https://www.biggerpockets.com/investment-calculators?utm_source=youtube&utm_medium=description&utm_campaign=none
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Join BiggerPockets for FREE 👇
https://www.biggerpockets.com/signup?utm_source=youtube&utm_medium=description&utm_campaign=none
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Check out Last Week’s Episode on Tarl’s Biggest Flipping Mistakes:
https://youtu.be/isPlKXT8-DM
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What Are Cap Rates and How Are They Calculated?
https://youtu.be/tcu4kVS8Z5g
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How to Calculate Cash-on-Cash Return:
https://www.biggerpockets.com/blog/cash-on-cash-return?utm_source=youtube&utm_medium=description&utm_campaign=none
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Rental Property Numbers So Easy You Can Calculate Them on a Napkin:
https://www.biggerpockets.com/blog/real-estate-math?utm_source=youtube&utm_medium=description&utm_campaign=none
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Connect with Tarl on BiggerPockets:
https://www.biggerpockets.com/users/tarl?utm_source=youtube&utm_medium=description&utm_campaign=none
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Follow Tarl on Instagram:
@tarlyarber or https://www.instagram.com/tarlyarber/

00:00 5 Real Estate Formulas Every Investor Should Know
01:10 1. Cash on Cash Return
09:05 Where Most Investors Get CoC Wrong
14:15 2. Net Operating Income (NOI)
18:09 3. Capitalization Rate (Cap Rate)
24:20 4. DSCR (Debt Service Coverage Ratio)
30:05 5. Max Purchase Price (MPP)
33:21 Run the Numbers BEFORE You Buy!

#biggerpockets #tarlyarber

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21 Comments

  1. A cap rate is not a measure of return. Cap rates come from an income approach to value called direct capitalization. All your 10 cap means is that investors have paid $10 for each possible dollar of NOI. in the 4 cap market they paid $25! You are explaining this incorrectly.

    Also, SFR's are not valued by cap rates.

    And, capex is not an operating expense.

    You should check the Chad and Brian Burke recent youtube interview that correctly explains this.

  2. The housing market is in a bubble because the price increases have gone up way higher than incomes. The ratios are at historical highs. It would be a bubble regardless of the stock side and investors. The higher interest rates are just going to make it pop faster. I'm just gonna stick with diversification using the copytrading system. Finished second quarter at +21%. Just an average Joe here trying to thrive in these volatile markets.

  3. Great video. But let me talk about something important, I see many young and old make mistakes that I think should not be. I believe that everyone, young or old, should have an investment plan that increases their financial returns from three figures to six figures. The investment can be your retirement plan or future plan, depending on what you want, but what matters most is that you have an investment that is profitable. However, I traded 2.1 BTC with signal and technical analysis form crypto expert Lily Alice in a short-term trade which earned me 9.6 BTC in two weeks. This is a great way of backing up my portfolio in these bearish market period.

  4. Tha k you for explaining that the actual cap rate is often (and confusingly) used interchangeably with the market cap without any acknowledgement of the difference. It took a while for me to figure this out. I hope your clear explanation helps prevent confusion for new investors.

  5. Had a listing agent give me his calculated Cap Rate of 6.2% on a property last week. Ran my own numbers and got about 4.2%. The agent said since they didn't have to do any major maintenance in the last two years, they put $0 in for long term maintenance in his calcs. So many agents are clueless.

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