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Does This Deal Actually Make Sense?

A good story and a good deal are not the same thing. Here's how to tell the difference, the actual numbers, what they mean, and where deals quietly fall apart.

The Numbers That Actually Matter

Six Metrics, Not a Feeling

This is what separates an investment decision from a vibe.

01
Net Operating Income
Gross income minus operating expenses, before debt service. This is the property's actual performance, independent of how you financed it.
02
Cap Rate
NOI divided by purchase price. Only means something compared against similar properties in the same market, never against a national average.
03
Cash Flow
What's actually left after every expense and the mortgage payment. This is the number that pays you, or doesn't, every month.
04
Cash-on-Cash Return
Annual cash flow divided by what you actually put in. This is the number that tells you if your specific capital is working hard enough.
05
DSCR
Debt service coverage ratio, how much income covers the mortgage payment. Lenders care about this as much as you should.
06
IRR
Internal rate of return, the full picture across your hold period, including eventual sale. Needs real assumptions, not optimistic ones, to mean anything.

Worth a Closer Look

Where Deals Quietly Fall Apart

Not dealbreakers by default. Assumptions worth stress-testing before you commit.

Zero vacancy assumedEvery property sits empty sometimes. A projection with 0% vacancy isn't conservative, it's incomplete.
No capital expenditure reserveRoofs, HVAC, and water heaters don't last forever. A deal that only works if nothing ever breaks isn't a safe deal.
Rent based on optimistic compsThe highest rent nearby isn't the rent you'll get. Use realistic comparables, not the best-case ones.
Gross rent multiplier used aloneGRM is a quick filter, not a decision-making number. It ignores expenses entirely.
Best-case financing assumedRates and terms change between offer and closing. Stress-test the numbers a point or two worse than quoted.
Appreciation doing the heavy liftingA deal that only works if the property appreciates isn't cash flowing, it's speculating.

Before You Talk to Anyone

Questions to Ask

Organized by who actually has the answer.

Your Lender
  • What DSCR do you actually require for this property type?
  • What's my real all-in rate, including any investment property premium?
  • How does the appraisal affect my terms if it comes in below purchase price?
A Property Manager
  • What's a realistic vacancy rate for this specific area and price point?
  • What does full management actually cost, all-in?
  • What turns over faster or slower than the listing suggests?
Your Accountant
  • How does depreciation actually affect my return in year one versus year five?
  • Does this deal make sense held personally or through an entity?
  • What's the real tax picture on exit, not just on cash flow?
A Contractor
  • What repairs are due in the next one, three, and five years?
  • What's a realistic capex reserve for a property this age and condition?
  • What would you personally budget for, that isn't visible in photos?

What Now

Suggested Next Steps

Run the numbers with realistic, not optimistic, rent and vacancy assumptions.
Compare the cap rate against actual comparable properties in the same market, not a national benchmark.
Build in a real capital expenditure reserve before you calculate cash flow, not after.
Stress-test the deal against financing a point or two worse than what you're quoted today.
Get a second set of eyes on the underwriting before you commit capital.

Know Before You Close

Underwrite It Properly Before You Wire Anything

This framework is the free version. WHOOTC Investment Research runs the actual numbers, NOI, cap rate, cash flow, cash-on-cash, DSCR, organized into one report before you commit capital.

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