How to Analyse a Property Investment Deal: A Complete Framework
Quick Answer
Analyse a property investment deal in five steps: (1) Establish ARV using recent comparable sales. (2) Estimate renovation costs using per-square-foot benchmarks. (3) Calculate MAO using the 70% rule. (4) Model rental income, NOI, and cap rate for buy-and-hold viability. (5) Stress-test all assumptions at 10% lower income and 15% higher costs.
The single most important skill in property investment is disciplined deal analysis. Most investors who fail do so not because of market conditions, but because they over-paid, over-spent on renovation, or under-estimated carrying costs.
Step 1 — Establish ARV: After-repair value is determined by comparable sales (comps) within a 0.5-mile radius in the last 90 days, adjusted for square footage, condition, and features. BuildIQ pulls live comp data for any address and calculates ARV ranges with confidence intervals.
Step 2 — Estimate renovation: Use per-square-foot benchmarks: cosmetic refresh £20–£40/sqft, moderate renovation £50–£80/sqft, full gut £90–£150/sqft. Always add a 15–20% contingency. Scope creep is the number one cause of renovation budget overruns.
Step 3 — Calculate MAO: Maximum Allowable Offer = (ARV × 0.70) − Renovation Cost. For a property with £300,000 ARV and £40,000 renovation cost, MAO = (£300,000 × 0.70) − £40,000 = £170,000.
Step 4 — Model rental yield: Gross rental yield = annual rent ÷ purchase price. Net yield accounts for vacancy (5–10%), management fees (8–12%), maintenance (1–2% of value), insurance, and taxes. Anything below 6% net yield in a normal market warrants scrutiny.
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