Our real estate analysis is designed to provide transparent and reliable estimates of both the income potential of a property and its intrinsic value. We do this by combining public and proprietary data to algorithmically determine estimated rents, operating expenses, and valuation metrics. Below, we outline the primary calculations that drive our dashboard, including how we establish different rent scenarios, calculate net operating income (NOI) and cap rates, and arrive at a stabilized and pre-rehabilitation value for the property.
Cash flow is a fundamental measure of how much net income a property generates after covering its operating expenses. We start with the estimated monthly rent and then deduct recurring costs like property taxes, HOA dues, insurance, and maintenance. The result of this subtraction is the Net Operating Income (NOI). This figure gives investors a clearer picture of potential returns before taking into account financing and other non-operating costs.
The capitalization rate ("cap rate") is calculated by dividing the annual Net Operating Income (NOI) by the property's listing price. Because our rent estimates provide a range (low, base, and high), each of these scenarios yields a different NOI, which in turn results in different cap rates. This is why we display a range or "bounds" for the cap rate. The lower bound aligns with conservative assumptions (lower rent scenario), while the higher bound reflects a more optimistic outlook (higher rent scenario). This range helps you gauge both the downside and upside potential of the investment.
We use a data-driven method to identify comparable rental properties ("comps") that share similarities in location, size, amenities, and other factors. Once these comps are found, we rank their rent levels and use the 25th percentile as our "Rent Low," the 50th percentile (median) as our "Base Rent," and the 75th percentile as our "Rent High." This approach provides a spectrum of realistic rental outcomes:
We break down operating expenses into distinct components based on available property data and common real estate benchmarks:
Property valuation aims to establish a fair market value for both current and future states of the property. We analyze current market comps, consider any needed improvements, and then adjust for project costs and expected returns. This helps investors gauge how much the property might be worth after renovations (the "stabilized" or "after-repair" value) as well as what a reasonable purchase price might be before such improvements.
To estimate the stabilized value, often referred to as After-Repair Value (ARV), we use the same data-driven comp approach described for rent estimations. Specifically, we focus on the 50th percentile (or median) figure of comparable properties to reflect a realistic market midpoint. This approach ensures that the ARV is neither overly conservative nor optimistic, providing a balanced view of what the property could be worth once it has been brought up to market standards in terms of condition, amenities, and overall appeal.
The Initial Value (Pre-Rehabilitation) is calculated by taking the Stabilized Value (ARV) and discounting it for the costs of any anticipated renovation or rehabilitation, along with a reasonable return that an investor would require for undertaking the project. In other words, we look at how much money and effort it will take to bring the property to its stabilized condition, and we factor in a desired investment return to arrive at a fair purchase price. This approach recognizes that properties needing repairs or upgrades are typically purchased at a discount to their potential post-repair value.
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