Learn to analyze deals
like a pro.

1. Cash Flow

Monthly income after all expenses and mortgage. Proof the investment is working right now. Not someday. Today.

2. Appreciation

Over time property values tend to rise — historically 3–4%/yr nationally, but varies by market. Never underwrite a deal that only works because of appreciation. Appreciation is a bonus, not a plan.

3. Amortization

Every mortgage payment pays down your loan balance. Your tenant pays off your debt for you. On a $300K, 30-year loan at 7% you pay down about $3,000 in principal in year one — and it grows every year (about $4,300 in year 6, about $6,100 in year 11).

4. Tax Advantages

The IRS lets you depreciate residential property over 27.5 years. On a $300K property with 20% land value, that is $240,000 ÷ 27.5 — about $8,700/yr in paper losses that offset your rental income. Your CPA sets the real land split. This is one of the most powerful legal tax shields available to regular people.

5. Leverage

You control a $400,000 asset with $80,000–$100,000 of your own money. If the property appreciates 5%, that is $20,000 in value on a $100,000 investment — a 20% return on your cash from appreciation alone, before cash flow, before amortization, before tax benefits.

First, two terms you need to know.

ARV — After Repair Value. This is what the property is worth after you fix it up. Not what it's worth today. Not what you paid. What it will appraise for once the rehab is done and a lender sends an appraiser to walk through. Think of it like the "retail price" of the finished product. If every other updated 3-bedroom house on the block is selling for $280,000, that's roughly your ARV.

LTV — Loan-to-Value. This is the percentage of the property's value that the bank is willing to loan you. Banks don't loan 100% of a property's value — they leave a cushion so that if the market drops, they're not underwater. On a BRRRR refinance, most banks cap you at 75% LTV. Some push to 80%. A few go lower. 75% is the number to plan around.

That's it. Two terms. You're 80% of the way there.

Now the math.

The new loan amount the bank gives you at refinance is:

ARV × LTV = new loan amount

So if your property's ARV is $280,000 and the bank offers 75% LTV:

$280,000 × 0.75 = $210,000 new loan

That $210,000 is the money you get to walk away with from the refinance. But hold on — there's already a loan on the property (the one you used to buy it). The bank pays that off first. Whatever's left is what actually lands in your pocket.

Let's walk through a full example.

You buy a beat-up house for $150,000 cash. You spend $40,000 on rehab. Total money in: $190,000 of your own cash.

After the rehab, an appraiser looks at the property and says it's worth $280,000. That's your ARV.

Now you go to the bank and refinance. They offer 75% LTV:

$280,000 × 0.75 = $210,000 new loan

The bank hands you $210,000. You have no existing loan to pay off (you bought cash), so the full $210,000 is yours.

You put $190,000 in. You got $210,000 out. You just bought a rental property and ended up with $20,000 more cash than you started with. That's cash-out BRRRR.

Cash-out vs cash-left-in.

Two scenarios can happen at refinance. The difference is whether you get 100% of your money back or not.

Cash-out BRRRR: The refinance loan is bigger than what you had invested. You walk away with extra cash (like the $20,000 in the example above). Rare. Beautiful. The thing that makes YouTube gurus rich — from selling you courses about it.

Cash-left-in BRRRR: The refinance loan doesn't cover everything you put in. Some of your money stays stuck in the deal.

Example: Same deal, but the appraisal comes back at $250,000 instead of $280,000.

$250,000 × 0.75 = $187,500 new loan

You put in $190,000. You got $187,500 back. You have $2,500 left in the deal.

That's not a failure. That's actually a very good BRRRR. More on that in a second.

The 80% benchmark (and why 100% is a unicorn).

Here's what nobody on YouTube will tell you: true cash-out BRRRRs where you get all your money back plus extra are rare. They happen in hot markets, on heavily under-valued properties, with conservative rehab budgets. Gold deals.

The real benchmark for a good BRRRR is recovering 80% or more of your capital on the refinance.

Why 80%? Because if you put $100,000 in and got $80,000 back, you only have $20,000 "stuck" in the deal. That $20,000 is generating cash flow every month, building equity as the loan pays down, and appreciating as the property goes up in value. Meanwhile, you have $80,000 freed up to go find the next one.

Recover 80% three times in a year and you've controlled three properties with what most investors put into one.

Recover 100%? You're chasing a unicorn. It happens, but don't build your plan around it.

Why this matters.

The BRRRR refi math is the reason the strategy exists. Without it, BRRRR is just "buy a cheap house and rent it out," which is fine but not special. What makes BRRRR different is that the refinance recycles your capital so you can do it again. And again.

When you see the Capital Recovery % number in the CDeal BRRRR analyzer, this is what it's measuring: how much of the money you put in came back out at the refinance. 80%+ is strong. 100%+ is rare. Below 50% means the deal worked, but it tied up more capital than a classic BRRRR should.

Run the numbers before you buy. The refi math tells you whether a deal is a true BRRRR or just a regular rental with extra steps.

What the rule actually says.

Maximum Allowable Offer (MAO) = (ARV × 70%) − Rehab Costs

In words: "The most you should ever pay for a flip is 70% of what it'll be worth when you're done, minus whatever it costs to fix it up."

That's it. The whole rule, in one formula.

Let's break down why the 70% is there. When you flip a house, you don't just buy and sell. You pay for a bunch of things in between — financing costs, property taxes while you hold it, insurance, utilities, permits, a realtor commission when you sell, closing costs on both ends. Add those up and they typically eat 20-25% of the ARV.

Then you want to actually make money on the deal. A target profit of 10-15% of ARV is standard for a flip.

Add the costs (20-25%) plus your profit (10-15%) and you get roughly 30-35%. The 70% Rule just flips that math around — if 30% of ARV goes to costs and profit, then 70% is the max you can spend on acquisition and rehab combined.

Let's walk through a real example.

You find a beat-up 3-bedroom house in a neighborhood where updated 3-bedrooms sell for $320,000. That's your ARV.

You walk the property with a contractor. The kitchen needs a full remodel, the bathrooms need updating, flooring throughout, paint, some roof repair. Contractor quotes $55,000.

Plug it into the rule:

$320,000 × 0.70 = $224,000

$224,000 − $55,000 rehab = $169,000 max offer

That's the most you should ever pay for this house. Not $175,000. Not $180,000. $169,000.

If the seller won't take $169,000, you walk. It's that simple.

Why the 70% isn't optional.

Here's what happens when new flippers ignore the rule or soften it to "80% because this one's special."

Same house. ARV $320,000. Rehab $55,000. But you pay $190,000 instead of $169,000 because you fell in love with the property or the listing agent said "you'll lose it at anything under $190."

Acquisition: $190,000

Rehab: $55,000

Holding costs (6 months of hard money, taxes, insurance, utilities): ~$18,000

Selling costs (6% realtor + closing): ~$22,400

Total in: $285,400

Sale price: $320,000

Profit: $34,600

That's a 10.8% profit on $320,000 — sounds okay until you realize you worked on this deal for six months, took on $245,000 of debt, and your profit doesn't survive a single surprise. An appraisal $10,000 low, a rehab $8,000 over budget, a market that cools 3% — any one of those and you're at break-even. Two of them and you lose money.

The 70% rule isn't being conservative. It's being realistic about how often things go wrong on flips.

When seasoned flippers adjust the rule.

The 70% figure isn't sacred. In different market conditions, experienced flippers adjust:

• Hot markets with low inventory (75-80% of ARV). When properties are selling fast and appreciating, some flippers will stretch to 75%. Risky, but the speed of sale and potential upside can justify it.
• Cold markets or uncertain economies (65% of ARV). When sales are slow and prices are soft, drop the multiplier. 65% builds in extra cushion for a longer hold and potentially lower sale price.
• High-end luxury flips (60-65% of ARV). Expensive homes have smaller buyer pools and bigger price swings. The margin needs to be wider.
• Low-cost markets under $150,000 (60% of ARV or even lower). Fixed costs (insurance, utilities, closing costs) don't scale down proportionally on cheap houses. A $100,000 flip has almost the same holding costs as a $200,000 flip, so the percentage margin needs to be bigger.

New flippers should stick to 70% flat until they've completed at least three successful flips. Adjustments come from experience, not optimism.

Why this matters.

The 70% Rule is the single most important number in flipping. Miss it on the ARV estimate, miss it on the rehab budget, or override it because a property "feels right" — and you've turned a business deal into a gamble.

The math is brutal but fair. Pay 70% of ARV minus rehab, and the deal has room to breathe if something goes wrong. Pay more, and you're betting that nothing will go wrong. On a flip, something always goes wrong.

When you see the Max Offer number in the CDeal Fix & Flip analyzer, this is what it's calculating. The analyzer does the math for you — but the discipline to walk away when the seller won't meet the number? That part is on you.

1. Vacancy Shock

What happens if one unit sits empty for 3 months? Remove one unit's rent for 3 months. Do you survive without touching personal savings?

2. Rent Decline

What if rents drop 10%? Reduce all rents by 10% and recalculate cash flow. Still positive or at least survivable?

3. Expense Spike

What if insurance jumps 20% and you have a $6,000 repair in month 4? Add 20% to insurance. Add the one-time $6,000 expense. Can reserves handle it?

4. Rate Shock

What if rates are 1% higher when you refinance? Recalculate the future mortgage at current rate plus 1%. Does the deal still cash flow after refi?

What DSCR stands for.

DSCR — Debt Service Coverage Ratio. Ugly name. Simple idea.

"Debt service" is just a fancy way of saying "the loan payment." Principal and interest, month after month. "Coverage" means how well the property's income covers that payment. The ratio puts them side by side.

Think of it like a restaurant. If the restaurant brings in $1,250 a day and the rent on the building is $1,000 a day, the restaurant "covers" its rent with $250 of cushion. That cushion is what DSCR measures, except for rental properties instead of restaurants.

Try it: DSCR Calculator →

The formula in plain English.

DSCR = Net Operating Income ÷ Debt Service

In words: "What the property earns after expenses, divided by what the bank is owed."

The result is a number. If it comes out to 1.25, that means for every $1.00 the bank is owed, the property earns $1.25. The extra $0.25 is your cushion — the buffer that absorbs a vacancy, a broken water heater, an insurance hike.

If DSCR comes out to 0.90, that's a problem. The property only earns $0.90 for every $1.00 owed. You're paying the bank out of your own pocket every month to keep the lights on.

Let's walk through a full example.

You're looking at a rental property:

• Monthly rent: $2,500
• Monthly operating expenses (taxes, insurance, repairs, management, reserves): $750
• Monthly loan payment (principal + interest): $1,400

First, calculate Net Operating Income (NOI) — what's left after expenses but before the loan:

$2,500 − $750 = $1,750 NOI

Then divide NOI by the loan payment:

$1,750 ÷ $1,400 = 1.25 DSCR

That's a 1.25 DSCR. For every dollar the bank is owed, the property earns $1.25. Most lenders will approve that. Barely.

What different DSCR values actually mean.

Here's the part nobody tells you: 1.25 is a floor, not a goal. It's the minimum a conservative lender will accept, which means it's the worst deal you could get approved for. Aim higher. A property with 1.50 DSCR has real breathing room. A property with 1.25 DSCR is one broken HVAC away from negative cash flow.

The purchase vs refinance nuance.

Here's where DSCR gets interesting for BRRRR investors.

At purchase, DSCR is calculated on the acquisition loan — usually a short-term, higher-rate loan (hard money, bridge, etc.). The numbers often look scary because holding costs are high.

At refinance, DSCR gets calculated again on the new long-term loan. Lower rate, longer term, smaller monthly payment. The same property with the same rent will have a much better DSCR at refi than at purchase.

This is why BRRRR investors don't panic about DSCR during the rehab phase. They plan for the post-refi DSCR — the one that actually matters for holding the property long-term.

In the CDeal BRRRR analyzer, the DSCR you see on the results screen is calculated against the post-refi loan, not the bridge loan you used to buy. That's the number the bank will care about when you go for refi, and it's the number that tells you whether this deal will survive as a long-term rental.

Why this matters.

DSCR is the single number that decides whether a deal gets funded. You can have the most beautiful spreadsheet, the cleanest rehab plan, the best market thesis in the world — if DSCR doesn't clear the lender's threshold, the loan dies. And when the loan dies, the deal dies.

More importantly, DSCR tells you something the rest of the numbers hide. Cash flow can look good at 1.10 DSCR if you're ignoring reality. Cap rate can look great at 1.05 DSCR if you're underbudgeting expenses. But DSCR is honest — it compares your actual income against your actual loan payment, full stop.

Watch it like a hawk. If a deal's DSCR is below 1.20, dig deeper. Something's either too expensive, too optimistic, or too leveraged. If it's above 1.50, you have margin to absorb the inevitable surprises.

Banks calculate DSCR in seconds. So should you.

What cap rate actually is.

Cap Rate = NOI ÷ Purchase Price

In words: "What percentage return would I earn on this property if I bought it with all cash and no loan?"

If a property has $100,000 in annual NOI and costs $1,250,000, the cap rate is 8% ($100,000 ÷ $1,250,000 = 0.08). That's the all-cash return.

Think of it like a savings account interest rate, except the "account" is a physical building. Higher cap rate = higher return. Lower cap rate = lower return. Simple on the surface.

But here's where it gets interesting — lower cap rates don't mean worse deals. They usually mean safer deals.

Why lower cap rates often signal lower risk.

If an 8% cap rate sounds better than a 5% cap rate, why would anyone ever pay for the 5% deal?

Because the market isn't stupid. The cap rate reflects everything investors know about the risk of owning that property. A 5% cap rate property is commanding a premium price because the market sees it as safer:

• Better location (growing city, high employment, strong schools)
• Higher-quality tenants (stable jobs, long leases)
• Newer building (less capital expenditure coming)
• Stable market (low vacancy, predictable rent growth)

A 9% cap rate property is priced lower because the market sees more risk:

• Declining city (shrinking population, weak employment)
• Lower-quality tenant base (more turnover, more delinquency)
• Older building (major systems near end of life)
• Volatile market (big swings in occupancy or rent)

Think of it like a bond. Say a Treasury bond pays 4% and a junk corporate bond pays 9%. Nobody thinks the junk bond is "better" — it pays more because it's riskier. Cap rates work the exact same way.

The cap rate ranges and what they mean.

The key insight: "good" and "bad" cap rates don't exist in isolation. A 5% cap rate in Cleveland would be a bad deal — you're accepting institutional-market returns in a slow-growth market. A 9% cap rate in Manhattan would be a red flag — why is this property so cheap in such a strong market?

Always compare the cap rate to what similar properties are selling for in similar markets. Mismatches are where opportunities (and disasters) live.

Why cap rate is the valuation engine for commercial real estate.

Here's the thing that separates commercial multifamily from residential rentals: residential properties are valued on comparable sales. Commercial properties are valued on NOI divided by cap rate.

If the market cap rate for your property type in your area is 7%, and your property generates $140,000 in NOI, then your property is worth:

$140,000 ÷ 0.07 = $2,000,000

Change the NOI and you change the value. Increase NOI by $20,000/year (through rent increases, expense reductions, or both), and at the same 7% cap rate:

$160,000 ÷ 0.07 = $2,285,714

You just created $285,714 in value through operations. No market appreciation required. No rehab required. Just better management.

This is called forced appreciation, and it's the single biggest reason experienced investors love commercial multifamily. In residential, you're waiting for comps to rise. In commercial, you're building value through NOI growth — and every dollar of NOI compounds at the cap rate multiplier.

On a 7% cap rate property, every $1 of NOI growth creates $14.29 of property value. On a 5% cap rate property, every $1 of NOI growth creates $20 of property value. The lower the cap rate, the more powerful each NOI improvement becomes.

Cap rate compression — the market cycle nobody warns you about.

Cap rates aren't static. They move with market conditions, and when they move, property values move with them — sometimes brutally.

Cap rate compression happens when cap rates fall (prices rise). You bought a property at a 7% cap rate. Two years later, the market is pricing similar properties at 6%. Same NOI, but now worth more:

$140,000 ÷ 0.06 = $2,333,333 (up from $2,000,000 — a $333K gain with no operational improvement)

Cap rate expansion happens when cap rates rise (prices fall). Same scenario, but cap rates moved from 7% to 8%:

$140,000 ÷ 0.08 = $1,750,000 (down from $2,000,000 — a $250K loss with no operational decline)

Interest rates drive cap rate movement. When rates rise, commercial investors demand higher returns, which means higher cap rates, which means lower property values. The 2022-2024 rate cycle pushed cap rates up and cut commercial property values sharply through cap rate expansion alone.

The practical lesson: Never underwrite a commercial deal assuming cap rates will stay where they are today. Stress test your exit assuming cap rates expand by 100 basis points (1%). If the deal still works in that scenario, you have margin. If it doesn't, you're betting on favorable market conditions — which is speculation, not investing.

Why this matters.

Cap rate is the single number that tells you what the commercial market thinks about a property. It's priced in. You can't negotiate around it. The market has already weighed the location, the tenant base, the building quality, the growth prospects, and the risks — and compressed all of that into one number.

Your job as an investor is to read cap rates correctly. Buy properties where the cap rate reflects more risk than actually exists (underpriced opportunities). Avoid properties where the cap rate reflects less risk than actually exists (overpriced traps). And always stress-test your exit against cap rate expansion, because the market doesn't owe you stable cap rates at closing.

When you see the Cap Rate number in the CDeal Multifamily analyzer, this is what it's calculating. The math is simple. The interpretation is where experienced investors earn their edge.

Try it: Cap Rate Calculator →

Fixed costs (every month, like clockwork):

• Property taxes
• Property insurance (and flood/earthquake if applicable)
• HOA fees (if applicable)
• Utilities the owner pays (water/sewer in many markets, sometimes all utilities in multi-family)
• Landscaping / snow removal
• Pest control
• Trash pickup (in some areas)

Variable costs (averaged monthly, hit in lumps):

• Repairs & maintenance — the day-to-day stuff. A leaky faucet, a broken garbage disposal, a GFI outlet that trips for no reason. Budget 5-10% of gross rent minimum.
• CapEx reserves — the big stuff. Roof, HVAC, water heater, appliances, flooring. Budget 5-10% of gross rent. You're not spending this every month — you're saving for it every month.
• Vacancy loss — the rent you don't collect when a unit is empty between tenants. Budget 5-8% of gross rent even in hot markets.
• Turnover costs — cleaning, paint, minor repairs between tenants. $500-$2,000 per turnover, depending on the unit.

The expenses almost every newbie forgets:

• Property management — 8-10% of gross rent if you hire out. But here's the trick: even if you self-manage, budget it anyway. Your time isn't free, and one day you'll want to scale or travel or just stop dealing with 2am plumbing calls. If the deal only works without management, you don't have a deal — you have a job.
• Accounting & legal — tax prep, LLC maintenance, the occasional consultation. Small but real.
• Bank fees, ACH charges, software subscriptions — if you use property management software, tenant screening services, online rent collection, each one takes a small bite.
• Evictions — nobody plans for one, but they cost $2,000-$5,000 and a few months of lost rent when they happen. Budget a small reserve.

Naive math:

$1,800 rent − $1,100 PITI = $700/month cash flow

You're excited. $700 a month? That's $8,400 a year. You're about to pull the trigger.

Honest math (using the 35-50% rule):

Operating expenses at 40% of $1,800 = $720/month. But notice — your PITI already includes taxes and insurance (which are part of OpEx). So you need to subtract those from the 40% budget so you don't double-count.

Say $250 of your PITI is taxes + insurance. So real non-housing OpEx (repairs, CapEx, vacancy, management, etc.) is:

$720 total OpEx − $250 taxes/insurance (in PITI) = $470/month in other operating costs

Honest cash flow math:

$1,800 rent − $1,100 PITI − $470 other OpEx = $230/month cash flow

Still positive. But very different from $700.

And if you skip any of those line items — say you don't budget CapEx reserves or management — you're suddenly looking at $230 drifting toward zero the first time the water heater dies or you decide to hire a property manager.

The "$700 cash flow" deal was never a $700 deal. It was a $230 deal dressed up for a YouTube thumbnail.