Analyzing a deal

A deal is made or lost on the numbers and the paperwork. This lesson shows you how to work out what a property is worth, what it will cost you and what it can earn, plus what to check before you commit.

What you’ll learn

Why an investment is bought on the numbers, not on how much you like it.
How value is set: comparable sales, appraisals and income.
The costs buyers forget: closing, holding, repairs and selling.
The core measures: NOI, cash flow, cap rate, cash-on-cash return and gross rent multiplier.
The checks to make before you buy, including seller and HOA disclosure deadlines.

A home to live in vs. an investment

When you buy a home to live in, feelings count, and they should. It’s where you’ll live, so you might pay more for the right school or backyard, and fight to keep it if something goes wrong. An investment is different. You’re buying a set of numbers: what it costs, what it earns, and what it will sell for. If the numbers don’t work, it’s the wrong property, however much you like it.

	A home to live in	An investment property
Why you buy it	You want to live there	To make money: rent, a profit when you sell, or both
What sets your price	What it’s worth to you, within what you can afford	What the numbers support: value, rent and every cost. Paying more means accepting a lower return.
The kitchen, the view, the yard	Can be worth paying extra for	Matter only if they raise the rent or the sale price
If the inspection or appraisal goes badly	You may stretch to keep the home you love	You renegotiate, or walk away
Walking away	Hard, and sometimes not worth it	Normal. Many properties you look at won’t fit your numbers.

Ways to stay detached:

Write your walk-away price (the most you’ll pay) before you see the property.
Judge it on your analysis, not the tour.
Don’t picture yourself living there.
Expect to lose some to other buyers or bidders.
Have someone you trust check your numbers before you commit.

If you’ll live in part of it and rent the rest, be honest about which choices are about your home and which are about the investment.

Start with value

An appraisal is a written opinion of what a property is worth. For a home, appraisers compare it with similar homes that sold nearby. Fannie Mae requires at least three closed comparable sales, usually from the last 12 months. You can do a rough version yourself with recent sold prices, but only if the homes really are similar in size, age, condition and location.

Your own estimate is only a starting point. Value depends on the neighborhood, recent comparable sales, the property’s condition and the market. A professional appraisal is the best way to determine value: have it done by a state-licensed or certified appraiser. It is an opinion of value for a particular date and purpose, not a guaranteed sale price. Until you have one, your real estate agent can estimate the value from recent comparable sales.

Upgrades don’t add their cost to the value. A remodel can make a home more appealing, but appraisers value a feature by what buyers in that market pay for it, not by what it cost. Fannie Mae’s rule is that adjustments have to reflect how the market reacts, not the dollar-for-dollar cost of equipment and installation. If an improvement is bigger or pricier than is typical for the neighborhood, like a pool where pools are rare, it counts only for what it adds. In 2025, real estate agents estimated that a complete kitchen renovation gets back about 60% of its cost at resale, and a bathroom renovation about 50%.

Appraisers: What they do, when to hire one and how to check a license.
Real estate agents: How an agent helps you estimate value and make an offer.

If you plan to fix a property, you’ll estimate what it’s worth once the work is done. That’s often called the after-repair value (ARV), and it’s only as good as the comparable sales behind it. So use sold prices of homes already in that finished condition, not asking prices.

For income property, value also comes from the income: net operating income (NOI, the rent left after operating costs but before any mortgage payment) divided by the cap rate (the yearly return, as a percentage of price, that buyers of similar property in that market accept). “The core measures” below explains both.

Count every cost

Buying: closing costs usually run 2% to 5% of the price for a home buyer, not counting the down payment. Forced sales can add their own costs, like auction deposits or fees.
Repairs: get a contractor’s estimate, and add a cushion for what you can’t see.
Holding: loan payments, property taxes, insurance, HOA dues, utilities and upkeep. Count each month you own it, even months it’s empty.
Operating (for a rental): taxes, insurance, HOA dues, repairs and maintenance, vacancy, and property management if you hire it.
Selling: agent commissions, closing costs and any concessions to the buyer.

Your tax bill after you buy

The seller’s property tax bill often doesn’t predict yours. Each state changes the bill when a home is sold or stops being the owner’s home. Use the number for your situation, not the listing’s.

State	What changes when you buy	Example
Nevada	The yearly increase in the bill is capped at 3% for an owner’s main home. A rental is capped at up to 8%, unless the rent is at or below HUD’s Fair Market Rent and you file a claim with the assessor (NRS 361.4722–361.4724).	A $2,400 bill grows to about $2,780 in five years at 3%, but to about $3,530 at 8%.
California	A reassessable change in ownership generally resets the taxable value to current fair market value, often the purchase price (Proposition 13). Some transfers qualify for exclusions; confirm with the county assessor. The county also sends a separate “supplemental” bill for the rest of the tax year. It goes to you, and your lender’s impound account usually doesn’t pay it.	A seller who bought 20 years ago may pay $3,500 a year; at today’s price you might pay $7,500, plus a supplemental bill a few months after closing.
Arizona	Owner-occupied homes get a rebate on part of the school tax, up to $600 a year (A.R.S. 15-972). A rental doesn’t. You must also register a rental with the county assessor; a newly bought rental that isn’t registered can be fined $1,000 plus $100 a month, and registering within 10 days of a complaint avoids the penalty. A city or town can also fine the owner of an unregistered rental $150 a day after notice (A.R.S. 33-1902).	Expect up to about $600 a year more than an owner-occupant paid.
Utah	A main home is taxed on 55% of its value (a 45% exemption). A long-term rental counts when it’s the tenant’s main home, if you file the county assessor’s declaration that it’s a tenant’s main home (Utah Code 59-2-103.5). A second home or short-term rental doesn’t, so its bill is about 80% higher.	A home that pays $1,500 a year as a long-term rental pays about $2,700 as a short-term rental.
Texas	A home you live in can get the homestead exemption, including $140,000 off the school district value (Tax Code 11.13). A rental or second home can’t, so its bill can be much higher than the seller’s. You can protest the value by May 15, or 30 days after the notice was delivered if that’s later (Tax Code 41.44).	At an example school tax rate of $1 per $100 of value, the $140,000 exemption saves an owner who lives there $1,400 a year. A rental pays it.

Ask the local property-tax assessment office what the bill will be for your use, and put that number in Analyze a deal.

Insurance before you commit

Insurance: tell your insurer how you’ll use the property. Long-term rentals, home sharing, short-term rentals, vacant homes and renovations can need different policies or endorsements. Get a quote for your actual use.
Vacancy clause: many policies limit coverage once a home has been empty for a while, often 60 days in a row.* That’s a typical repair period, so read the vacancy clause and ask about a vacant-home or builder’s risk policy.
California wildfire areas: private insurers often say no. The California FAIR Plan mainly covers fire, so most owners add a separate policy for theft, water damage and liability. Get both quotes before you commit.
Texas wind and hail deductibles: many policies have a separate wind and hail deductible set as a percentage of the dwelling coverage, often 1% or 2%. On $250,000 of coverage, 2% means you pay the first $5,000 of a hail claim. Put it in your reserves.
Texas coastal windstorm: a private policy may exclude wind and hail. TWIA offers coverage for eligible properties in its coastal service area after a denial from an authorized insurer. The property must have a windstorm certificate of compliance (WPI-8 or WPI-8-E from the Texas Department of Insurance, or WPI-8-C from TWIA), with limited exceptions. Ask an insurance agent to check the address, certificates and eligibility, and get a written quote before you commit. Windstorm coverage doesn’t include flood.
Flood: most homeowner policies don’t cover flood. Check the flood zone and price a flood policy if you need one.
Flood insurance a lender requires: say a home is in a high-risk flood area and has a mortgage from a federally regulated or insured lender (most banks and credit unions), or a loan backed by Fannie Mae, Freddie Mac, FHA or VA. Then it must have flood insurance for the life of the loan (42 U.S.C. 4012a), and that can change your numbers.
Flood policy wait: a new NFIP flood policy usually takes 30 days to start, unless you buy it along with a loan at closing. So a cash buyer may want to apply before the sale closes.
Written quote: get a written quote, or a binder for an auction, before your inspection period ends or before you bid. If no one will insure it at a price that works, that’s often a reason to pass; your situation and risk tolerance decide.

The core measures

Measure	How to figure it	What it tells you
Net operating income (NOI)	Gross rent, minus vacancy and credit loss, minus operating expenses. Leave out loan payments and depreciation.	What the property earns on its own, no matter who owns it or how it’s paid for.
Cash flow	NOI, minus reserves you set aside for big replacements like the roof and HVAC, minus the loan payment (debt service).	What you really keep each month or year.
Cap rate	NOI ÷ price (or value).	The return before financing. Compare with similar properties nearby.
Cash-on-cash return	A year’s cash flow before taxes ÷ all the cash you put in (down payment, closing costs, repairs).	The return on your own money, after the loan.
Gross rent multiplier (GRM)	Price ÷ gross yearly rent.	A quick screen: lower usually means more rent for the price. It ignores expenses.

Example: a rental costs $300,000 and rents for $2,400 a month ($28,800 a year). Here it is with two loan sizes, both at 7% for 30 years. Your cash in is the down payment plus $20,000 of closing costs and repairs.

Line	Loan $240,000	Loan $150,000
Rent for the year	$28,800	$28,800
Vacancy (5%)	− $1,440	− $1,440
Operating expenses	− $9,000	− $9,000
Net operating income (NOI)	$18,360	$18,360
Cap rate (NOI ÷ $300,000)	About 6.1%	About 6.1%
Loan payments for the year	About − $19,160	About − $11,975
Reserves for big replacements	− $1,400	− $1,400
Cash flow for the year (NOI − loan payments − reserves)	About − $2,200	About + $4,985
Your cash in	$80,000	$170,000
Cash-on-cash return	About −2.8%	About 2.9%
Gross rent multiplier ($300,000 ÷ $28,800)	About 10.4	About 10.4

Same building, same cap rate: the loan decides whether you make or lose money. With the $240,000 loan, the payments plus the reserve are bigger than the NOI. Borrow $150,000 instead and the payments drop to about $11,975 a year, so cash flow is about +$4,985. Run NOI − loan payments − reserves with your own loan amount, rate and term, rather than assuming a good cap rate means good cash flow. A cap rate ignores the loan.

Rules of thumb, and their limits

Flippers often quote a “70% rule”: offer no more than 70% of the after-repair value, minus repairs. It’s an informal shortcut, not a standard, and it doesn’t fit every market or price range. Use it to screen deals, then run your own numbers with real costs. For auctions, set your top bid before the sale, so you know when the price stops fitting your numbers.

Watch for “gross profit” in flipping reports. ATTOM reported that the typical U.S. flip in 2025 made $65,981 in gross profit, a 25.5% return, the lowest since 2008, and took 163 days to resell. Gross profit is only the sale price minus the purchase price. It leaves out repairs, holding and selling costs.

A typical 2025 flip	Amount
Bought for about $259,000, sold for about $325,000 (gross profit)	$66,000
Repairs (example)	− $25,000
Buying costs, about 2%	− $5,000
Holding: 5½ months of loan, tax, insurance and utilities at $2,000 a month (example)	− $11,000
Selling costs: commission and closing, about 7%	− $23,000
Left before income tax	about $2,000

The repair and holding numbers are examples; yours will differ. The point is that a “typical” flip can leave almost nothing once every cost is counted. Run Fix and sell in Analyze a deal with your own numbers, and try a slower sale and a lower price too.

Check before you commit

Title: a title search shows who owns the property and what liens are recorded. Owner’s title insurance protects you if someone later claims an interest from before you bought it. Lenders usually require their own policy.
Condition: a home inspection is not the same as an appraisal, and you usually need both. At an auction you often can’t go inside, so look from the street and budget for surprises.
Lead paint: for homes built before 1978, sellers must give buyers a lead hazard pamphlet and a 10-day chance to test for lead-based paint. Buyers can choose to skip (waive) that chance. A sale at foreclosure is exempt from this federal rule, so at a foreclosure auction you get no disclosure and no testing period. That doesn’t make the home lead-free: plan for a lead-safe inspection and repairs. A bank’s later resale of the home isn’t exempt.
Flood risk: check the property on FEMA’s Flood Map Service Center, the official source for flood zones.
Taxes: look up the property tax bill and any unpaid taxes with the county assessor and treasurer.

Seller and HOA disclosures

	Nevada	California	Arizona	Utah	Texas
Seller’s disclosure	The seller must fill out a disclosure form and give it to the buyer at least 10 days before the home changes hands (NRS 113.130). Sellers don’t have to disclose defects they don’t know about. If it comes late, the buyer can cancel before closing without penalty.	The seller gives the buyer a Transfer Disclosure Statement as soon as practicable before title transfers (Civil Code 1102.3). If it arrives after the offer is signed, the buyer has 3 days to cancel after hand delivery, or 5 days if it came by mail or electronically.	State law requires certain disclosures, such as soil cleanup (remediation) the owner knows about (A.R.S. 33-434.01). For a seller of five or fewer parcels of unsubdivided land in an unincorporated county area, and a subsequent seller of a qualifying parcel, A.R.S. 33-422 requires an affidavit of disclosure at least 7 days before transfer, with 5 days to cancel after receipt. The statute excludes trustees at trustee sales and sheriffs at execution sales. Ask your agent or attorney whether your transaction qualifies.	The state-approved purchase contract has the seller give a written property condition disclosure by the Seller Disclosure Deadline. The buyer can cancel by the Due Diligence Deadline. Sellers must disclose methamphetamine contamination they know about (Utah Code 57-27-201).	Most sellers of a single home must give the Seller’s Disclosure Notice by the time the contract is signed. If it comes later, the buyer can end the contract for any reason within 7 days after getting it. Sellers fill it out to the best of what they know (Property Code 5.008).
HOA documents	The owner gives a resale package (governing documents, dues, current and expected assessments, budget, reserves, unpaid judgments, pending lawsuits, fees). You can cancel in writing until midnight of the fifth calendar day after you receive the package, as long as the sale hasn’t closed yet (NRS 116.4109(2)). Some sales are exempt (NRS 116.4101); ask your agent or the HOA whether yours is covered (NRS 116.4109).	The owner gives governing documents, financial and reserve disclosures, assessments, violation notices and rental limits before transfer (Civil Code 4525).	You get the association’s documents (rules, budget, reserves, insurance, lawsuits) within 10 days. In a planned community with fewer than 50 homes, or a condo with fewer than 50 units, the seller delivers them within 10 days after the offer is accepted. With 50 or more, the association delivers them within 10 days after the seller’s notice of the accepted offer. The association’s fee can’t be more than $400, plus up to $100 for a rush (A.R.S. 33-1260 and 33-1806).	Before closing, the seller gives the buyer the association’s recorded governing documents and a link to the state’s educational materials for HOA buyers (Utah Code 57-8a-105.1 and 57-8-6.1, as amended in 2026). A payoff fee can’t be more than $50.	Within 10 business days of a written request, the association delivers its restrictions, bylaws, rules and a resale certificate. The certificate lists dues, approved special assessments, unpaid amounts, reserves, the budget and pending lawsuits (Property Code 207.003).
Forced sales	Auctions and bank sales usually come as-is. Check each guide for what applies.	Foreclosure sales, court-ordered sales and many resales by the foreclosing lender are exempt from the Transfer Disclosure Statement (Civil Code 1102.2).	Auctions and bank sales usually come as-is. Read the sale’s terms.	Auctions and bank sales usually come as-is. Read the sale’s terms.	Foreclosure sales, court-ordered sales, lenders reselling homes they took back, and government sellers are exempt from the Seller’s Disclosure Notice (Property Code 5.008(e)).

In Texas, the TREC resale contract also covers the Seller’s Water Disclosure about water rights; the Making an offer and closing lesson explains when it’s due and your deadline to end the contract.

In Arizona, sellers and agents can’t be sued for not telling you that a home was the site of a death or felony, that someone with HIV lived there, or that it’s near a sex offender (A.R.S. 32-2156).

In Utah, sellers and their agents aren’t liable for not telling you that a home was the site of a homicide, suicide or other felony, or that someone with HIV lived there (Utah Code 57-1-37).

In Texas, sellers and their agents don’t have to tell you about a death on the property from natural causes, suicide or an accident unrelated to its condition, or that someone who lived there had HIV or AIDS (Property Code 5.008(c)).

Put it into practice

Take one real listing and write down where each number comes from: rented comparables, the county’s tax bill, an insurance quote. Mark every number you guessed.

Key terms

Comparable sale (comp): A recent sale of a similar property nearby, used to estimate value.
Title: Legal ownership of a property, and the record of who holds it.
Lien: A legal claim against a property for a debt, such as a mortgage or unpaid taxes.
Escrow: An arrangement where a neutral company holds the money and papers until every step of the sale is done.
Closing: The last step of a sale, when the money is paid and the deed passes to the buyer.
Earnest money: A good-faith deposit you make with an offer, credited toward the price at closing.
Contingency: A condition in the contract, such as an inspection or financing, that can let you cancel.
As-is: Sold in its current condition, with no repairs by the seller.
After-repair value (ARV): What a property should sell for once the planned work is done.
Cash-on-cash return: A year’s pre-tax cash flow divided by the cash you invested.
Gross rent multiplier (GRM): Price divided by gross yearly rent.
Title insurance: Insurance against claims on the property that existed before you bought it.
Resale package: Nevada’s bundle of HOA documents a condo or HOA home seller gives the buyer.

Sources

Last reviewed 2026-10-05.