Master Basic Real Estate Investments with This Proven Flowchart
1. Property Entry
Input: Property details (price, location, type, condition).
2. Market Analysis Check
Data Needed:
Local market rent averages (Zillow, Rentometer).
Vacancy rates (Census data, local property managers).
Appreciation trends (NeighborhoodScout, MLS comps).
Days on Market (DOM) for similar properties.
Decision:
Pass: Rent ≥ 1.5x PITI (mortgage + taxes + insurance) and DOM < 60 days.
Fail: Reject or renegotiate price.
3. Financial Viability Check
Calculations:
Gross Potential Income (GPI): Monthly rent × 12.
Net Operating Income (NOI): GPI – (Property taxes + Insurance + Maintenance + Vacancy + Management fees).
Cap Rate: (NOI / Purchase Price) × 100.
Decision:
Pass: Cap rate ≥ 8% (adjust for market) and NOI > Debt Service.
Fail: Walk away or adjust offer.
4. Financing & Cash Flow Check
Data Needed:
Loan terms (interest rate, down payment, loan term).
Debt Service: Mortgage calculator output.
Cash Flow: NOI – Debt Service.
Decision:
Pass: Cash flow ≥ $200/door (or investor’s target).
Fail: Renegotiate financing terms or reject.
5. 1% Rule Check
Calculation:
Monthly Rent ≥ 1% of Total Acquisition Cost (purchase + rehab).
Decision:
Pass: Proceed.
Fail: Reject (unless value-add potential).
6. Rehab & ARV Check (For Flips)
Data Needed:
After Repair Value (ARV): Comps + appraisal.
70% Rule: Max offer = (ARV × 0.7) – Rehab costs.
Decision:
Pass: Purchase price ≤ 70% Rule threshold.
Fail: Reject or renegotiate.
7. Exit Strategy Validation
Options:
Buy & Hold: 10-year cash flow projections.
Fix & Flip: ARV – Holding costs – Rehab – Purchase price ≥ 20% profit margin.
BRRRR: Refinance appraisal must cover 75%+ of total investment.
Decision:
Pass: Exit strategy ROI ≥ 15% annualized.
Fail: Reject.
8. Final Deal Scorecard
Metrics to Aggregate:
Cash-on-Cash Return: (Annual Cash Flow / Total Cash Invested) × 100.
IRR (Internal Rate of Return).
Risk Score: Market volatility + tenant demand + loan leverage.
Final Decision:
Greenlight: All metrics meet investor thresholds.
Red Flag: 1+ critical fails (e.g., negative cash flow, low cap rate).
Key Notes for Flowchart Design:
Use automated formulas (e.g., Excel/Google Sheets) to plug in inputs and auto-calculate metrics.
Include escape valves (e.g., “Renegotiate Offer” loops).
Bold rejection triggers (e.g., “ARV < Purchase Price + Rehab + 20% Profit”).
Add risk warnings (e.g., “Over-leverage” if loan > 75% ARV).
This system forces investors to confront hard numbers—not emotions—to avoid costly mistakes.