Investment analysis process

Investment analysis process

We can breakdown this process into the following steps:

  • Understand Analysis scope
  • Gather data
  • Build Model
  • Test & Interpret
  • Make Decision

 

1. Understand Analysis scope

Understand what you are trying to do and what information you need to conduct the analysis that you’re looking for?

2. Gather data

The next step would be to get the data that you need. Data like market sale prices or market rents from comp’s so that you know what the similar properties are selling for so that you can get a pretty good idea of what you should pay. You can get an idea of what the rents are so that you can estimate or assume the accurate rents for your analysis so that you’re not over or underestimating it.

3. Build Model

The third part is to build the investment model. Now, this part usually takes finance and excel experience.

4. Test & Interpret

This part is the most important part of the analysis and it’s often the toughest part to learn. This is the part where you test and interpret your analysis and your assumptions.

It’s whether what you found is consistent with what you want. And what does all of it mean?

Does it mean it’s a good investment?

Does it mean that you need to pay less?

Does it mean that you need to get higher rents?

Does it mean that you should do a different kind of rehab, that you should spend a little bit less on that, and that you might want to hold it longer?

5. Make Decision

The last part is to take what you learned through the analysis and ultimately make a decision.