Purpose

Operating procedure

Step 1 — Define the investment thesis

1. Clarify the strategy: buy-and-hold rental, fix-and-flip, BRRRR, or owner-occupy.
2. Establish target metrics: minimum cap rate, target cash-on-cash return, max purchase price.
3. Document the buyer's financing assumptions: down payment %, interest rate, loan term.
4. Record any hard constraints: geography, property type, bedroom count, condition tolerance.

Step 2 — Comparable sales analysis (comps)

1. Identify 3–6 recent sales (last 6 months, within 0.5 mile) of similar property type, size (±20% sq ft), and condition.
2. For each comp, record: address, sale price, price per sq ft, days on market, condition, date sold.
3. Calculate adjusted comp values: apply adjustments for differences in bedrooms, bathrooms, lot size, condition, and age.
4. Derive a fair market value range: low (worst comp adjusted), midpoint (median adjusted), high (best comp adjusted).
5. Flag any comps that are outliers and explain why (distressed sale, estate sale, off-market).

Step 3 — Financial modeling

Calculate each metric and show the formula used:

Expense line items to include in NOI calculation:

• Property tax, insurance, property management (8–10% of gross rent)
• Maintenance reserve (5–10% of gross rent), vacancy allowance (5–8%)
• HOA/body corporate fees, utilities (if landlord-paid), capex reserve

Step 4 — Due diligence checklist

Work through each item; mark as ✅ verified, ⚠️ needs attention, or ❌ blocker:

1. Title search — confirm clean title, no liens, easements, or encumbrances
2. Zoning verification — confirm permitted use matches investment strategy
3. Environmental assessment — check flood zone, contamination history, asbestos/lead (pre-1978 builds)
4. Building inspection — structural, roof, plumbing, electrical, HVAC, pest
5. Survey and boundaries — confirm lot lines match listing
6. Insurance quotes — obtain quotes; flag if flood or special hazard insurance required
7. Rent roll verification (if tenanted) — confirm current leases, deposits, arrears
8. Code compliance — check for unpermitted work, outstanding violations

Step 5 — Area profiling

Research and score each factor on a 1–5 scale with evidence:

Step 6 — Budget modeling

Build a complete acquisition budget:

1. Purchase price — based on comp-supported offer price
2. Closing costs — estimate 2–5% of purchase price (stamp duty, legal, lender fees)
3. Renovation estimate — itemized by trade (cosmetic, structural, systems), with 15% contingency
4. Carrying costs — monthly holding cost × estimated months to stabilize or flip
5. Total cash invested — down payment + closing + renovation + carrying costs
6. Exit strategy — target resale price (flip) or stabilized annual cash flow (hold), with timeline

Step 7 — Synthesize and recommend

1. Compile the Property Scorecard (see output structure).
2. State a clear recommendation: Buy, Negotiate (with target price), Pass, or Needs more data.
3. Identify the top 3 risks and what would change the recommendation.
4. If data is missing, list exactly what is needed and where to get it.

Decision rules

• Cap rate < 4% in a buy-and-hold strategy → flag as low-return unless strong appreciation thesis exists.
• Cash-on-cash < 8% → requires explicit justification (appreciation play, value-add opportunity).
• GRM > 15 → rental income unlikely to cover debt service; stress-test assumptions.
• Vacancy assumption < 5% → override to minimum 5%; use 8% for areas with > 10% local vacancy.
• Maintenance reserve < 5% of gross rent → override to minimum 5%; use 10% for properties > 30 years old.
• Comps older than 12 months → discount reliability; flag as stale data.
• Environmental red flags (flood zone, contamination) → escalate to professional assessment before proceeding.
• Unpermitted work detected → quantify cost to rectify or value discount before modeling.
• Never model with 100% occupancy — always apply a vacancy factor.
• Always separate the renovation budget from the purchase price in return calculations.

Output structure

Deliver these sections in order:

1. Property Scorecard

2. Comparable Sales Analysis

Table of 3–6 comps with adjustments and derived fair market value range.

3. Financial Model

Full income/expense breakdown, all six metrics calculated, sensitivity table showing returns at ±5% purchase price and ±10% rent assumptions.

4. Area Profile

Scored factor table from Step 5 with data sources cited.

5. Due Diligence Status

Checklist from Step 4 with status markers and notes on any open items.

6. Budget Summary

Itemized budget from Step 6 with total cash required and contingency.

7. Risk Assessment

Top 3–5 risks ranked by likelihood × impact, with mitigation actions.

8. Recommendation

Clear Buy / Negotiate / Pass / Needs More Data verdict with reasoning.

Anti-patterns

• Ignoring maintenance reserves — modeling with zero maintenance creates fantasy returns; always include 5–10% of gross rent.
• Assuming 100% occupancy — no market has zero vacancy; minimum 5% vacancy factor, higher in soft markets.
• Skipping title search — liens, easements, and encumbrances can destroy a deal post-closing.
• Emotional bidding — exceeding the comp-supported price range because "it feels right" is not analysis.
• Using asking price as market value — always validate against actual closed comps, not listings.
• Single-comp analysis — one comp is an anecdote; use 3–6 for statistical confidence.
• Ignoring capex — roofs, HVAC, and plumbing are when-not-if expenses; model them.
• Projecting rent increases without evidence — use historical rent growth data, not wishful thinking.

Related skills

• market-research — broader market trend analysis that feeds into area profiling
• spreadsheet-analysis — build and audit the financial model workbook
• financial-tracker-ops — ongoing tracking of rental income and expenses post-acquisition
• competitor-teardown — analyzing competing listings or investment opportunities
• document-to-structured-data — extracting data from property listings, inspection reports, or title documents

Failure handling

• If the user provides no address or area, ask for at least a city/suburb and property type before proceeding.
• If comp data is unavailable or stale (>12 months), explicitly state this, widen the search radius, and lower confidence.
• If key financial inputs are missing (purchase price, rent estimate), provide a template for the user to fill in rather than guessing.
• If due diligence reveals a potential blocker (title issue, environmental), halt the financial analysis and escalate the blocker first.
• If the investment strategy is unclear, present returns under both buy-and-hold and flip scenarios and ask the user to confirm.