Early on in the real estate game it’s important to manage your time effectively. This is made much easier by an approach referred to as back-of-the-envelope analysis (BOE). In many cases, back-of-the-envelope analysis is all you need at assess a particular real estate opportunity. The trend in real estate has been toward more sophisticated quantitative analyses on excel where one can look at multiple scenarios, calculate potential returns based on each of those scenarios, and keep track of what has happened over the long-term.
However, the BOE approach is still valuable in initially analyzing opportunities. Like Poorvu says, it’s like Grandmother throwing together her chicken soup with no discernible recipe. Like Grandmother’s soup, the BOE analyses employed by real estate professionals almost always perform as expected.
Bruce Kirsch of Real Estate Financial Modeling offers free back-of-the-envelope models on his site to let you know in 60 seconds if a transaction is worth further analysis. They apply to ground-up developments and distressed or foreclosed development project acquisitions. Play around with the excel models here or download the files below.
How do you initially assess a real estate opportunity?
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