---

name: deal-analysis
description: "Analyze a real estate deal with a stress-tested pro forma that surfaces the assumption that breaks it and enables a fast, defensible yes/no."

/deal-analysis

Optimistic assumptions plus no stress test is how investors lose money on deals that looked good in the spreadsheet. Vacancy at 2% when the market runs 8%. Renovation at when the scope routinely runs . Cap rate compression assuming the exit is always favorable. Every bad deal looked fine in the original pro forma — because the pro forma was built to support a conclusion rather than to test one. This skill builds the analysis backward from the stress scenarios, forces conservative underwriting, and names the single assumption that breaks the deal — before you're under contract.

Acquisition Cost

• Purchase price: as offered, not as hoped.
• Closing costs itemized: title insurance, transfer taxes, attorney fees, lender fees, inspection. Use actuals from your market — typically 2-4% of purchase price.
• Total acquisition cost = purchase price + closing costs. This is your basis.
• Flag: if you're buying off-market, have you verified the seller's price expectation against recent comps? An off-market deal is only a deal if the price is actually below market.

Itemized Renovation Budget with Contingency

• Line-item every category: roof, HVAC, electrical, plumbing, kitchen, bathrooms, flooring, exterior, permits, GC overhead.
• Each line must come from a contractor bid or from your own documented cost history — not from a rule of thumb.
• Add contingency explicitly: 15% for light renovation (cosmetic only), 20% for medium (some systems), 25% for heavy (full gut or unknown systems). Write the contingency line as a line item, not as a mental buffer.
• Total renovation budget = line items + contingency.
• If you haven't walked the property or had a contractor walk it, every renovation number is a guess. Say so.

Rent Underwriting

• Gross rent: use closed lease comps from the past 90 days, same submarket, comparable unit size and condition. Not Zillow Zestimate. Not asking rents. Closed leases.
• If you're planning a value-add premium (post-renovation rent increase), name the specific comparable properties that support the premium. "I think it'll rent for more after renovation" is not underwriting.
• Apply a vacancy factor: use the trailing 12-month vacancy rate for the submarket, not the national average. Default floor: 8%, regardless of what the seller's pro forma shows.
• Effective gross income = gross rent × (1 - vacancy rate).

Expense Assumptions

• Itemize every expense: property taxes (actuals, post-purchase assessment), insurance, property management (8-10% of effective gross income if self-managing, still model it — your time has cost), maintenance and repairs (10-15% of EGI for older properties), CapEx reserve (10% of EGI for systems and roof), utilities if owner-paid, landscaping, pest control.
• Total expenses = sum of all lines. Net operating income = EGI minus total expenses.
• Sanity check: for single-family, expenses routinely run 40-50% of gross rents. If your model shows 30%, you're missing something.

Three-Scenario Pro Forma

• Base case: your realistic assumptions above.
• Stress case: vacancy at 1.5× base, rents 10% below underwriting, renovation 20% over budget.
• Upside case: full occupancy, rents 5% above underwriting, renovation on budget.
• For each scenario calculate: annual cash flow, cash-on-cash return, and 5-year IRR assuming a conservative exit cap rate.
• Decision rule: does the deal work in the stress case? If cash-on-cash goes negative under stress, the deal requires perfect execution. Know that going in.

The Assumption That Breaks the Deal

• Name the single input in your model that, if wrong in the wrong direction, makes the deal unprofitable or deeply unattractive.
• Often: rent underwriting (if rents don't achieve post-renovation premium), renovation scope (if hidden systems problems emerge), or exit cap rate (if the market compresses against you at sale).
• For the deal-breaker assumption: what is the cheapest way to validate or kill it before going under contract? Contractor walkthrough, pulling permit history, reviewing the past 24 months of actual vacancy data on the street.

Lender Readiness

• What does the deal look like from the lender's perspective? Debt service coverage ratio (DSCR) = NOI / annual debt service. Most lenders require 1.2×. Calculate it.
• Loan-to-value: what will the lender fund, and what does that require as a down payment and reserves?
• Have you confirmed financing terms before making an offer? Rate assumptions in the model must reflect what a lender will actually quote you today, not rates from six months ago.

Rules

1. No single-point projections. Every scenario has three versions.
2. Rent underwriting uses closed comps, not asking rents or owner representations.
3. Renovation budget has an explicit contingency line at the appropriate percentage.
4. Expenses include a CapEx reserve. If the model doesn't have a CapEx line, it's wrong.
5. Name the deal-breaker assumption before the offer goes in.
6. DSCR is calculated. A deal that doesn't pencil for a lender on conventional terms is a harder deal than you think.

The output is a pro forma you can defend to a lender, a partner, or a future version of yourself when you're deciding whether to hold or sell — with every assumption visible and every scenario stress-tested.