Dave:
This is how to analyze a rental property in 2026. If you want to build wealth with real estate, analyzing deals is the most important skill to master. If you can find a great property and buy it at the right price, everything else becomes easier. And if you can’t, that’s when you risk losing money. Fortunately, analyzing deals does not need to be difficult. You just need to know which metrics actually matter and how to estimate a few key variables. So today I’m walking you through it step by step. This is how to take any listing from Zillow or Redfin and determine if it’s a property you should buy. I’ll share which metrics I personally care about most, explain how to estimate rents, expenses, and after repair values, and reveal which numbers you can compromise on and which you absolutely cannot. I’ve personally been using this exact process every single day for the last 15 years as I’ve built my own rental property portfolio.
And even in today’s market, you can do this too. You can find cash flowing properties that will bring you closer to financial freedom if you run the numbers the right way. This is how you do it.
What’s up everyone? I’m Dave Meyer, chief investment officer at BiggerPockets. Today, I’m taking you through my deal analysis framework because being successful in real estate investing mostly comes down to one really simple thing, finding the right deals and buying them at the right price. And I’m actually going to do this. I’m going to explain it to you by just doing a deal analysis. I went on Zillow, I found an on-market deal, and we’re going to walk through it and analyze it. Then at the end, we will get to the metrics and which ones you should pay attention to, but because the calculations of those metrics are pretty easy, we’re using the BiggerPockets calculator. If we just put the right assumptions into that, all the metrics that you need to know like cash on cash return, return on equity, those other things, they’re all going to be spit out for us at the end accurately.
And I’ll talk through how to interpret those at the end of the episode, but we’re going to just start now with doing this deal analysis. So the deal that I found and that we’re going to walk through together is a duplex. As you probably know, I’m a big fan of small multifamily. I love two to four units. I’m usually looking for duplexes or something similar. And I found one in a market I actually have heard a lot about, never been there, but Augusta, Georgia, Home of the Masters Golf Tournament. It is a great market on paper, has really strong fundamentals. So I just started looking around Zillow, looking for on-market deals, and I found one that looks really intriguing, but we’re going to find out together if this is a deal that you should buy or not. So the deal we got, if you’re watching on YouTube, I’ll pull it up, but if you’re listening to it, it’s listed, I’ll say, for $275,000.
It’s a duplex. It’s pretty nice looking, not architecturally inspiring, but it’s kind of just a giant box. But it looks pretty nice from the outside, pretty solid. It’s 1,780 square feet. So each of the units are two bed, one bath, and it’s an up-down duplex, which I like personally. I really like deals where it’s what’s called a purpose-built duplex, meaning that instead of a house being cut up into a single family home being cut up into two units, this building was designed to be a duplex. In my experience, that leads to less and less expensive maintenance problems. I still have and buy other types of homes, but I do like these. All things being equal, I prefer a purpose-built duplex. This one’s good. The things I liked about it, one, purpose-built, it looks like it’s in solid shape from the outside. And I really like that it was built in 1984.
That already tells me that the plumbing, the electrical, probably in decent shape. Even if it’s not perfect, it’s going to be much better than some homes that you buy in the Midwest that are built in the 1920s or even earlier. And when I look through the pictures, what I see is I think someone may have flipped this recently. And I know people have red flags going off like, “Oh my God, I can’t possibly buy a flipped house, but let’s just see if the numbers work.” The reason I say it’s flipped is it’s really nicely painted on the inside. There’s new floors. It looks like vinyl plank. It looks like there’s new doors. The kitchens look brand new. So this place is in really good shape. So already as I’m doing this preliminary research about my analysis, before I start putting numbers into the calculator, I’m starting to just get a sense of what condition the property is in.
Because when we get to the point where we’re putting these numbers in the calculator, we’re going to have to say how much for repairs? How much for capital expenses? How much vacancy is there going to be? And all of those things are influenced by the condition of the property. If it’s in good shape, your capital expenditures are probably not going to be that much. If someone just replaced the HVAC or just replaced the roof, you don’t have to count on spending money on that for 10 years or maybe even longer. Additionally, if the property is in good shape and if it’s in a good condition, you can get a higher end of the rental range because one of the key inputs we’re going to put into our deal analysis and into our calculator is rents. And a lot of times, whether using the BiggerPockets rent estimator, a similar tool, talking to an agent, talking to a property manager, they’re going to give you a range for rents.
They’re going to say, “This place will rent for 900 to 1,200.” That’s a pretty big difference, right? 900 to 1,200 is the difference between a deal cash flowing and you losing money. So you got to narrow down that focus. And by looking at, even if it’s just pictures, if you’re not yet seeing the property in person, you can start to understand that range. So overall, I think it’s a really nice looking property. I think I would have an easy time renting this out, and I’m not counting on super high expenses, and I am sort of counting on higher end rent range in the area. One more thing I’m going to look at before I move on to my calculator is just looking through the listing description to see what capital expenditures and improvements have been done. This is what I really liked about this listing when I saw it.
This line right here said major capital improvements were completed in 2021. It’s only five years ago, including a new roof. I love that. Roofs can cost 10, 20, $30,000. And they last usually on average 30 years. And so the fact that that’s only a five-year-old roof, that’s a major plus. New HVAC system, that’s huge, super big expense. Windows are so expensive. They are so expensive. Those were replaced. Vinyl siding, that stuff is bulletproof, that will last forever. Water heaters and exterior doors. So in my head, as I’m just doing this preliminary screening before I jump into the calculator, I’m already seeing that this place is in good shape and I’m not going to have to come out of pocket a lot on top of my down payment. The flip side to this, which we’ll talk about a little bit, is there’s not that much value add opportunity, but we’ll get to that in a minute.
So that’s really all you need to do before you start jumping into the calculator. And so what I’m going to do is move over here. If you’re watching on YouTube, I’m going to move to the BiggerPockets calculator, but don’t worry if you’re listening, I’ll describe. But if you want to do this and follow along, you can go to biggerpockets.com/calculators and try these out for yourself. So there’s basically five steps to working through the calculator. It’s number one, putting in the property information. That couldn’t be simpler. Number two is purchase details, like what you’re buying it for. Number three is financing, what kind of mortgage or loan that you’re using. Number four is your rents, and number five is expenses. So we’re just going to walk through each of those five things. Again, the property information is literally just kind of like writing down what property it is.
I just put in the address, which is in Augusta, Georgia right now. I’m putting that property information in. Calculators will also pull in some tax information for you, so that’s why you put in the address. Next up, purchase details. So this is what you’re buying it for. So I’m going to put in $275,000. That’s what it’s listed for. Now, talk about this a little bit later. We might want to offer under listing price, probably will, but I’m just for now going to put in the listing price, which is $275,000. The purchase closing cost is the next thing we need to do, which for a property like this, I would estimate about $5,000. You can use that, I think, as a rule of thumb depending on where you live, but a property this price in Georgia, probably about five grand. If you’re buying a more expensive property in a more expensive area, I would use a rule of thumb of maybe 7,500 bucks.
Best way to do this, talk to a lender, talk to an agent about purchase costs in your area. That’s the best way to get in a good input. The next thing you need to put in for the purchase details is whether or not you’re rehabbing the property. Because if you’re doing something like the BRRR method or if you’re buying something that’s a little bit rundown and you want to improve the quality of it, you need to account for that in your deal analysis. It’s super important because it’s such a valuable, important part of generating a return on deal, especially today. Now, I did some research into this property. I haven’t done the full analysis, but I was just kind of looking into it. Is there any way to add value to this property? Because I like it, but it’s in good condition. So that’s like, it’s not a bad thing, but I like adding value where I can.
And actually what I figured out was this does not have a garage. And I could build a garage in this property for about 10 grand, and I think it would add about $25,000 of value. I figured this out. I estimated my ARV, which is the after repair value, what the property’s going to be worth after you make these upgrades by looking at comps. So I went on Zillow, I went on Redfin and found similar kinds of properties that I’ve sold in the last six months. And I tried to figure out the difference between what properties that had a garage versus properties that didn’t have a garage we’re selling for. And my estimation is roughly $25,000. So it’s valuable to people in this market. If you are going to do your own value add project, this is, I think, probably the hardest assumption that you’re going to have to do.
So if you’re going to buy a property that you’re going to renovate, put new floors in, put new paint on the wall, maybe move walls if you’re going to do something more ambitious, figuring out what that property is going to be worth after you do that renovation is a skill and it takes some work. So I encourage you to try and learn how to do this yourself, but this is also where your agent comes in. This is where your agent should, if they’re a good investor-friendly agent, they should be able to tell you this. You go to them and say, “I like this property. What do you think would increase the ARV?” Or, “I’m going to buy this property and I’m going to renovate the kitchen in both sides of this duplex. What do you think the ARV is there?” That’s what you should be relying on your agent for.
You want to get good at it yourself so you can gut check it because ultimately every decision comes down to you as an investor, but they should be helping you a lot with this. And if you don’t have a good investor-friendly agent, you can get one for free. BiggerPockets, go to biggerpockets.com/agents. Tons of investor-friendly agents there. But make sure you get this ARV down. You want to be accurate on this one. It’s off by five grand here or there, that’s okay, but you don’t want to take a big swing and miss. If I were to buy this property and say, “I’m going to install a garage and that’s going to take my value from 275 to 350.” No, that is not good. That’s going to throw off all of my calculations. I want to be accurate and I don’t want to be overly optimistic. I kind of want to be conservative.
And so once you’ve figured that out, and again, this takes some repetition and reliance on your agent and working with your agent, but I’m going to put in my after repair value into the calculator as 300,000 and my repair cost as 10,000 because that’s what I think it will cost. So the last thing you can do here before moving on from purchase details is adjust the property value growth, basically the rate of appreciation that you expect for this property. Now you might know this, but over time, property values go up in the United States. The long-term average is like 3.5%. But I personally recommend, and what I do for my own deals is do something lower. I actually put in 2%. And the reason that I do that is because my focus, what I’m doing in this deal analysis is does this deal make sense for me today?
I need to make sure that the cashflow is good today. I need to make sure that the return on equity is good today. And sure, I’d love appreciation, but I don’t want that to be the driver of whether or not this deal makes sense for me. And so I purposely set this expectation low. And that way, if it still works based on low conservative estimates, any appreciation that I get in the future is just a bonus. And that’s how I do it. It’s how I recommend most investors do it, but it’s sort of up to you. If you want to put it at three, four, 5%, you can do that. If you want to be even more conservative, you can put it at zero. It’s probably unlikely, but you can do that as well. So now we’ve done our first two steps of deal analysis, which are property information and purchase details.
Next, we’re going to move on to financing and putting in your loan assumptions, but we got to take a quick break. We’ll be right back.
Welcome back to the BiggerPockets Podcast. I’m Dave Meyer talking through how to analyze a rental property in 2026. Before the break, we got through two of our five steps. Step one was property information. That was literally just copy and pasting. Step two was purchase details where we put in our purchase price, our closing costs, our repair costs, and our after repair value. Now we’re moving on to our financing details, which is basically the kind of loan that you’re going to use, or maybe you’re buying it for cash, but I’m going to assume most people listening to this are going to be buying things with a mortgage. So you come down here on the calculator for everyone watching on YouTube, but for those listening, basically what we need to put in here is one, what down payment you’re going to put down in terms of percentage, the interest rate that you are using, the loan term.
So are you doing a 30-year fixed? Are you doing a 15-year fixed? Are you doing an adjustable rate mortgage? And then lastly, whether you’re paying any points, which I’ll explain in a second. So first things first, down payment. If you are an investor, the typical down payment, this is common misconception, is not 20%, it is 25%. Most lenders require 25% down on investment property. So I’m going to use that for our analysis today. You might be able to find local lenders that do 20%. That absolutely exists. The big ones usually ask for 25%. The other exception is if you’re doing a house hack, you can put as little as three and a half percent down. If you’re doing an FHA loan, there’s even some private loans that do three and a half percent down, you can put 10% down. So if you were doing owner-occupied like a house hack, you have a lot more options here.
But for me, what I pay on my loans when I go out there is 25%, so that’s what I’m going to put in here. That makes my down payment $68,750. And then I’m going to put in my interest rate. This obviously varies day to day, especially right now, but as of right now, I looked it up this morning. The average interest rate is about six and a half percent. For investors, you’re usually paying a little bit more. So I’m going to put 6.8% for my interest rate here because when you go out and you just Google interest rate, it’s usually for a home buyer. Those folks get lower mortgage rates because they’re often backed by the government or for a lot of different reasons. But 6.8% is what I’m going to do. And I love a 30-year fixed rate mortgage, so I’m doing that 30-year fixed rate mortgage.
This is one of the things you want to be accurate about. If you put in 6.2% here and it’s actually 6.9%, that can make a big difference in a deal. Maybe not one at this price point, but if you’re at a deal that’s 500 grand or 600 grand, that’s hundreds of dollars a month. And so you really want to know what your mortgage rate’s going to be. Luckily, this is super easy and free. Call a lender. Establish a relationship with a lender. That is the easiest way to get the right inputs and the right assumptions for this part of your deal analysis. It’s also where you will get information, one, about closing costs, and you’ll also get information about the last question here on the financing details, which is points charged. Now, points are just kind of like extra fees that are added onto a mortgage, and you might pay them because you’re putting less than 20% down.
That is a very common reason you pay points because the lender is taking on more risk by getting a lower down payment, and so they need to be compensated for that additional risk, and they do that through points. You also have the option to voluntarily pay points. And I know most people aren’t voluntarily giving banks their money, but often why people do this is you can buy down your mortgage rate. So if you want to do that, you can say, “I’m going to pay five grand at the beginning of the mortgage and I’m going to buy my rate down from 6.8% to 6%.” I’m making those numbers up, but that is something that you can do. Generally, it’s a good idea if you expect to hold onto a property for more than eight, nine years, but that’s a decision that you have to make. Best way to know how to do that, talk to a lender.
So if you talk to a lender, you’re going to have a very easy time getting the inputs for the calculator here. And that’s what we’re talking about. How do you get good inputs and put into this calculator? For this one, talk to a lender. If you need one, go to biggerpockets.com/lender and you can get matched with one. We also, if you are a pro member, have discounts on loans through some of the biggest providers in the country. You can get literally thousands of dollars off your closing costs. You can get better interest rates. So go to biggerpockets.com/pro and you can check out those perks if you are a pro member. Just buying one deal, by the way, and getting those benefits on your loan is worth the price of BiggerPockets Pro. So definitely check that out. All right, we’ve done three of the five steps.
We’ve done property info, we’ve done purchase details, we’ve done financing deal tools. We are flying through this thing. I’m going slowly because I’m talking about this a lot, but hopefully you can see that if you practice this, you should be able to do this really quickly because honestly, financing details not going to change that much from deal to deal. So if you’re looking at 10 duplexes in a week, your interest rate, your loan term, your points charge probably going to be the same. So you can start to get faster and faster at these things. The next one we’re moving on to is rent. This one is super important because if you look at most deals right now in today’s market, the cashflow is decent. Some of them are thin, some of them don’t cash flow. But a difference here or there in $100 a month in rent, $200 a month in rent really does matter.
And so you want to get this one as close as possible. There are actually three ways that I look for rents before I plug them into the calculator. Number one is using an algorithm or an automated tool. We have one, the rent estimator on BiggerPockets. There are other good ones out there on the market, but you plug in your address, you tell them how many bedrooms, how many bathrooms, and it basically uses an algorithm. It’s kind of like a zestimate for rent and tells you what you think rents are. A lot of times it will give you a range, so you want to make sure you know where in that range you fall. So in this property, when I look this up, I saw that the range was like a thousand dollars to $1,400. That’s a pretty big difference. So I need to know where in that range I fall.
And that’s why I was looking at the pictures and looking at the location so much because I wanted to understand, is this a good location? Are we going to have a lot of demand from tenants? And how nice is it compared to other properties in the area? And what I am going to do is peg this at the 75th percentile. Now, I never go to a hundredth percentile ever. Even if I know I have the best property on the block, I do not put a hundredth percentile because I do not. Again, I like to be conservative with these things. I do not want to assume I’m going to get the best rent in the neighborhood. Who knows what happens when you go on rent? Maybe it’s a bad season. Maybe it’s snowing that month. Maybe there’s a hurricane. Who knows? So I like to discount it, but I will go up to the 75th percentile.
So for me, when I do this and I see a thousand to 1,400 bucks, the 75th percentile is $1,300. So that is my initial assessment. But I won’t just rely on the algorithm. I’ll actually take two additional steps. Next step is I will just go on Zillow and apartments.com or whatever you use in your local market and just check out what rents are in the area and look at comps. If I see there are a bunch of apartments that are similar in quality, similar in location, and they’re all listed for 1,150, red flag. They know something I don’t. Or tenants are going to go rent there because it’s a comparable property that’s $150 less.That’s why you can’t just rely on the algorithm. You need to go out there and see what your competition is. It’s super easily done. It takes 10 minutes to go do this on zillowandapartments.com.
But make sure you are looking at a comparable property in terms of amenities and finishes and in a comparable location. The third, and perhaps the best way to do this is to actually just talk to a property manager. So if I’m looking and analyzing a deal in a market that I already invest in, I’ll just call my property manager and say, “Hey, you rent out dozens or hundreds of properties. What’s this going to rent for?” They’re going to know better than Zillow. They’re going to know better than any algorithm. And I weigh the property manager’s input more than anything else because ultimately they’re on the hook for that. If I am talking to my property manager and they say I can rent it for 1,300, I say, “Go do it.” And then they can’t do it, that reflects poorly on them. Obviously things happen, but they are going to be conservative and confident in the numbers they give you because they’re the ones that actually have to go out and execute on it.
So the property manager is really valuable here. All that to say, in our example that we’re going to do here, I’m going to put in $2,600 because I think $1,300 for each unit is believable in this market. I actually saw several that were higher than this. So I’m not going on the high end, but I do have confidence in this property. It’s super nice. You saw the pictures if you’re watching on YouTube, but trust me if you’re listening on audio, it’s just a nice property. They both look really good. It’s all upgraded. It’s in a good market. Walking distance to Augusta National Golf Club, not that you probably can get in there, but it’s just a cool fact. All right, so that’s what we’re putting in for our rent. And with that, we’re going to move on to the final step of our deal analysis here, which is expenses.
This one is super important. Some of them are really easy. Some of them are tricky. So there’s two buckets of expenses. Ones that are fixed, you know what they’re going to be. Then there’s something called variable expenses. That’s the stuff that you don’t know when it’s coming, but it’s coming at some point. Things like repairs, maintenance, vacancy, that stuff. The fixed expenses are property taxes. You should know ahead of time on a Zillow or Redfin listing, it should say your property taxes. Sometimes it doesn’t. And if it doesn’t, you can easily look this up on any government website. It’s free public information. So you can go do this. There’s no reason to get this one wrong. I found out for this property, it’s $2,800. So I’m going to put in $2,800 annualized. Insurance, you should be able to get this right too. Call an insurance broker.
You don’t need to call for every property you do. Call about one duplex. Call about a second duplex. If they’re about the same price point, you can assure that that third duplex, it’s probably going to be pretty similar unless it’s in a flood zone or something. But most markets, insurance from property to property, if they’re similar kinds of properties, doesn’t change that much. And so on a property like this, I am confident that I can get it for about 1,500 bucks a year. The other fixed expense that I know is my property management fee. So for me as an out-of-state investor, I don’t live in Augusta, Georgia. So if I was analyzing this deal, I’d need a property manager. I pay to my other property managers in other markets. I pay 8%, 8% of rent. I’m going to assume that I do that here as well.
Then comes the trickier ones, which are the variable expenses. These are things like repairs and maintenance, like vacancy and like capital expenditure. And these are just harder to pin down because you don’t know when they’re coming up. You just don’t know when a repair is going to happen. And so what I recommend you do is set aside a certain percentage of your income every single month. Don’t take it out. Don’t go spend it. Even if you’ve accumulated it for a year and that bank account’s starting to look big, don’t spend it. Put it aside for repairs and maintenance and capital expenditures. And that is why the BiggerPockets calculator is set up this way. It has it as a percentage. And so for repairs and maintenance, I’m going to use 5%. For capital expenditures, I’m going to use 5%. And for vacancies, I’m going to use 4%.
Now, why am I using those numbers? Well, because of this property is in good condition. I actually think it might be below 5% for repairs, maintenance and CapEx. It might not be 10% for all those things combined, but I like to use those sort of as the bare minimum. Again, I like to be conservative. In real estate, if you do conservative and deal analysis, it’s pretty hard to lose. I think perhaps nothing lowers your risk more than conservative deal analysis. So that’s why I do it. By the way, these are two different buckets, repairs and maintenance and capital expenditure, basically because they’re treated a little bit different by the IRS. Repairs and maintenance, you can think of as how do I keep my property in the condition that it was when the person rented it? So toilet breaks, a dishwasher breaks, you need to repaint to get it back to good condition.
That’s repair and maintenance, keeping the property the way it is. Capital expenditures are when you spend money to improve the property or those big ticket items like your roof or your HVAC. Those are treated differently as the IRS, which is why we have them broken out in the BiggerPockets calculator. Again, capital expenditure is probably going to be low for the next couple years on this property because everything was fixed in 2021, but I’m going to put 5% there just because I want to save up some money so that when that hot water tank needs to replace in three or four years, those last eight to 10 years that was replaced five years ago, that’s probably the first thing that will go. So we’re going to need a hot water heater. It’s like a thousand bucks in a couple years. I’m going to start putting away that money from day one.
And so I have 5% for there. And then vacancy, sometimes I will put up to 8%. I kind of do between four and 8%, but this is a nice property where I think people are going to stay. And so I’m basically saying every two years I’m going to have one month of vacancy in one of the units. I think this is reasonable. If you want to go up to 8%, you can, but I’m pretty conservative and I feel pretty good about this. So that’s our major expenses. Again, we did property taxes, insurance, repairs and maintenance, CapEx, vacancy, management fees, all of that. The next thing that we need to do is put in our utilities, but I’m actually not going to do that. One of the reasons I like purpose-built duplexes, I mentioned this before, is they are metered separately, meaning they have their own electricity, their own gas, so they just pay them themselves.
I don’t need to get involved in that. I don’t want to get involved with that. I will put 25 bucks a month for water and sewer. That is usually something the landlord pays. I pay that on most of my properties. In some markets, I pay for garbage. I’m going to just put like 15 bucks a month. It’s usually pretty cheap. No HOA fees on this property, and that’s it. If I wasn’t blabbering on here, this would’ve taken me three to five minutes. And with that, I’m going to press finish this analysis and we’re going to get our numbers and find out if this is a good deal or not. Should we go ahead and make an offer? We’ll find out after this quick break.
Welcome back to the BiggerPockets Podcast. I’m Dave Meyer talking about how to analyze a property conservatively, accurately in 2026. And before the break, we walk through all the assumptions and numbers you need to be able to put into your calculator to get those numbers. And I just pressed the button on the calculator to find out if this is a good deal. And what I found is very encouraging. So our initial numbers here are that this property, it’s on market. I’m paying full asking price. My initial analysis says I’m going to make $285 a month for a 4% cash on cash return. Now, I think that is pretty good. I like these numbers as my first read here. I actually would consider buying this deal right now depending on a couple of things. Before I go into that though, we need to shift to the other skill that I mentioned before.
Remember at the top of the episode, I said there’s two things you need to be able to do. Number one was put in the assumptions into the calculator. We’ve covered that. Number two is know which metrics to pay attention to and which ones not to pay attention to. So let’s just talk about that for a minute and then we’ll come back to our example here and evaluate each of them. There are basically three metrics that I recommend you look at. The first one I think is the thing that most people are attracted to, which is cash on cash return. Now, cash on cash return, if you want to know how to define it, you can look up the formula, but basically it’s your annual cash flow divided by the total amount that you invested in that property. And it is a measurement of how efficiently your investment is generating cashflow.
So just going back to our example, we’re putting in about $75,000 and our cashflow, the total amount of money that we are going to pocket after all of these Expenses. After putting aside money for that water heater, after putting aside monies for repairs and maintenance, after paying our property manager, we’re going to get $3,420 per year. And so if you divide 3,420 by that 75 grand, again, I’m rounding here, you get a 4% cash on cash return. So what is a good cash on cash return? This is a hotly debated topic in the real estate investing community. And I have a somewhat maybe contrarian take on this. If you were to ask me, is a 4% cash on cash return on this deal good? I would say yes. Now, a lot of people would say no to that. They say that they need 8% cash on cash return.
They need a 10% cash on cash return. But I will argue against that for a couple of reasons. First and foremost, start thinking about what level of cash on cash return is good compared to other deals that you could buy and is good compared to other things that you could do with your money. I could go out and buy a bond and it would get me about 4%. And so I think buying a deal that has a 4% cash on cash return in real estate is way better than going out and buying that bond. They both get you the same cash every single year, but real estate has the tax benefits. It has the amortization, the potential for value add. It has all of these things that boost it on top of that. And so if I can get four or 5% cash on cash return on day one on a property that’s in a good market and is probably going to appreciate and is in good condition and probably will have low CapEx, I think this is a good deal.
I genuinely do. I think this is better than almost anything else that you could do with your money. Go find me a better thing you can do with your money than a deal just like this. Maybe you’ll say the S&P 500 this year, yeah. Long-term, over 10, 15 years, I think this is probably one of the best possible things that you can do with your money. So that’s our number one metric, cash on cash return. The second metric I want you to pay attention to at this stage of your investment is called the compound annual growth rate. Some people call this CAGR. It’s a fancy term for just what is your annualized rate? Taking into account compounding. Not going to get into compounding, but just trust me, this is a better way to look at it than a plain, simple ROI. The reason I like this metric and the measure we’re going to use it is to compare it to other investments.
I want to compare this deal to whether or not I should be investing in the stock market with this money. 75 grand is a lot. Should I put that in the S&P 500 or should I put that into this real estate deal? Now that’s what we’re going to use CAGR for. Now you can go Google it in my book. I have definitions, explain all this in a lot of detail if you’re that kind of person, but for now, if not, just trust me, this is an important metric. The higher, the better. And so for me, my minimum that I could get on a compound annual growth rate is 10%. The reason this property is only hitting 10% and is only marginally above my minimum right now is one, because I put in that low assumption for appreciation, which I’m happy about. And two, it’s not a lot of value add.
The other way that you get a good compound annual growth rate is by doing renovations. And I’m not really doing that with this project. So this is telling me, one, not that I shouldn’t buy it, but maybe I need a higher cash on cash return to justify this lower compound annual growth rate. And it’s also giving me insights into what I need to do next because I still would consider this deal. I actually genuinely would consider this deal, but it’s kind of on the line for me. I would want to see this compound annual growth rate closer to 12%. Ideally more like 13 or 14%. Why that number? Because that beats the S&P 500. The long-term average of the stock market is like nine, 10%. Depending on who you ask, it’s 8% to 10%. I want well above that because real estate takes work. It’s more work than going out and buying a stock, going out and buying an index fund.
And so what you need to do, in my opinion, is get at least 2% above that, ideally three or 4% above that. How do you get that up? Well, in this scenario, there’s really only one thing I can do because normally there are a couple levers that you can play with. You can play with, can I get higher rents by renovating the property? What value add projects can I do? That’s probably the most reliable way to improve this number. But with this property, it’s already been fixed up, so there’s limited stuff I can do. If I spent more money on the interiors of this property, it would probably be a waste. So the only thing I can do, and luckily this is a thing that you can absolutely do. It’s a great thing to do in 2026 is you try and get seller concessions. Basically, get a lower price.
That is absolutely possible. So I’m just going to show you, if I go to down on this calculator, I can actually just adjust this price. Instead of 275, what if I can get it for 265? I don’t know if I can, but let’s just see. All right, this gets us one, not only to a 5% cash on cash return, so I’m already liking this deal better. This gets me to a 12.6% compound annual growth rate. That alone just got me what I wanted. This takes me from maybe I would buy this deal to this what I would offer. Now that means I’m not offering full asking price on this deal. This property has been on the market for 22 days. It’s not crazy, but clearly it’s not flying off the shelf at 275, which means the agent and the seller are probably going to be open to a price reduction.
And what I’m suggesting here, 265 instead of 275, that is not a crazy price reduction. We’re seeing that all the time. All the time. That is a 3% price drop. That is happening every single day. You can get this. So actually what I would do is honestly offer lower than that. I would probably go into this property and maybe offer 250. Let’s just see what that is. 250, that gets us a 6.3% cash on cash return. I like that a lot. And it gets us nearly 16% compound annual growth rate. That tells me if I could get that, I would buy this deal. If I talk to a lender, I would talk to my agent and all my assumptions here are right and I could get this deal right here, I would buy it. For sure. This is a good deal. So this is exactly why you do this analysis.
Why you use this calculator is you can see I’m not willing to pay 275. Now that I’m seeing this, I’m thinking I wouldn’t pay 275 for this. Two borderline. I’m going to go in a 250 and try and get it there. Maybe 255, maybe 260. That’s what I’d be willing to pay. That’s a good buy. Now in some situations, just so you know, some people are tied to their purchase price. They love their purchase price, so they really want that 275. Okay. See if you can get other seller concessions. This is stuff that the seller pays for either out of pocket or they give you credits at closing, but whatever it is, there are two major things you can do. One is usually you get concessions to make repairs, but this won’t need a lot of repairs. So one option is, hey, I need a garage, you could pay for 10 grand.
That probably won’t work. They usually aren’t going to do a construction project for you. So the better thing that I would do is ask them, if they’re like, “I need 275, but I’m willing to work with you on other terms,” I would go after the interest rate on the mortgage. Remember when I was telling you before that you can pay those points to lower your mortgage rate? Well, as I said, most people don’t want to pay for that upfront or just give the bank their money, but sellers will do this for you. They will pay that for you. This happens all the time. I sold the property, a flip that I did. I paid down their mortgage rate just the other day. This happens all the time. So let’s see if we had to pay 275, would a 6% mortgage get us to what we need?
It’s okay. That gets us to 5.6% cash on cash return and a nearly 12% CAGR, but that doesn’t get us there. So I would need them to buy it down even further. So let’s see what we see, 5.7%. That gets us to a 6.2% cash on cash return and 12% CAGR. So I think we need to do better than that. I actually think what we need to do is ask them for a two point buydown, get us from 6.8 to 4.8%. If we can do that, that gets us a great cash on cash return, 8%. And it’s a little bit lower than the price reduction, but we still get a 13.5% compound annual growth rate with an 8% cash on cash return. I’d buy that. So this gives you two options, right? This is what’s so great about doing deal analysis this way is you say, “It’s not a bad deal as listed.
It’s not, but it’s okay. If you want to make this a good deal, here are your two options. Get that price point down to below 265.” Even 265 is good, but I think personally I would try for lower and try and get 250 or get that two point buydown. You can do this. They can buy your rate down to 4.8%. Builders are doing this all the time. Sellers are doing this. You can negotiate that down. Either of those work or maybe some combination. Maybe they go down to 265, they buy your rate down 1%. Let’s see what that would get you. If you do that, that gets you a 7% cash on cash return, 14% CAGR, another good option. So something like that is the deal that you do. I think the main takeaway here, this part is that people talk about finding deals, but you have to actually make the deal.
You can’t just go out and assume that what it’s listed for is what you should pay or how the final deal is going to be structured. By doing the analysis, by using a tool like the calculator, by putting in good inputs, by understanding these metrics and benchmarks, you can go out and design the exact deal that works for you and your strategy. I’ve given you the way I look at these things, but you might have a little bit different way of thinking about it. But hopefully you can see from what we’ve talked about today that it really just comes down to two things. Can you get good information to put into the calculator? I explained how to do that. It’s really not that hard. It does take some practice. Go out and do a couple of these. It’s why I recommend people analyze five deals a day when they’re first getting started.
Go out and do that. Get that practice. I promise you, you’ll get good at this. You’ll get fast at it. You will not be intimidated by it. Then understand these metrics. What’s most important to you? Is it your growth rate and your equity returns or is it your cash on cash return? Maybe if you’re like me, it’s a combination of those things and you’re willing to be flexible depending on how these two metrics play out. But if you are able to do this, you will be able to do the core thing every real estate investor needs to do, which is spot the good deals and ignore the bad ones. That is the key. That is what you are trying to do with deal analysis. And hopefully after listening to this episode, you are able to go out and do that for your own portfolio. That’s our episode for today.
If you want to check out the BiggerPockets calculators, again, go to biggerpockets.com/calculator. You can check those out. And if you are a pro member and want to use some of those perks, go to biggerpockets.com/pro. Thank you all so much for watching this episode of the BiggerPockets Podcast. I’m Dave Meyer, and I’ll see you all next time.