The Pro's Playbook: Analyzing Deals in Seconds with the REI Prime Calculator

Why Most Investors Analyze Deals Wrong

Episode 100. I look at 35-40 deals a week. Most get eliminated in under 60 seconds — not because I'm a genius, but because I run five metrics in sequence, each one filtering out bad deals faster than the last.

Here's the system.

The 1% Rule — Your 10-Second Filter

The 1% rule is the simplest screen in real estate. Monthly rent should be at least 1% of the purchase price. That's it.

• Property costs $185,000 → rent needs to be at least $1,850/month
• Listing shows $1,400/month on a $185,000 price tag → that's 0.76% → move on

Don't call the agent. Skip the showing. Save yourself the spreadsheet. It failed the first filter.

The 1% rule won't tell you if a deal is good. It tells you if a deal is worth spending another 5 minutes on. In markets like Columbus, Memphis, and Birmingham, you'll find properties hitting 1%. In San Francisco or Miami? The rule eliminates practically everything — which is useful information about that market.

NOI — The Foundation

Every other metric builds on NOI. If your NOI is wrong, everything downstream is wrong.

NOI = Gross Income - Operating Expenses

My conservative defaults: 8% vacancy, 10% CapEx, 5% maintenance, 8% management, actual taxes and insurance. No debt service — NOI lives above the financing line.

Example: a 4-unit building in Indianapolis. Gross monthly rent: $4,200 ($1,050/unit). Annual gross income: $50,400.

NOI: $28,776. That's the property's earning power before debt. Every calculation after this depends on that number being accurate.

Cap Rate — What It Tells You (and What It Doesn't)

Cap rate = NOI / Purchase Price. It answers one question: what return does the market pay for income in this location?

Our Indianapolis 4-plex at $340,000: $28,776 / $340,000 = 8.46%

In Indianapolis, that's solid — the market average for small multifamily runs 7-9%. If this came in at 5.5%, I'd want to know why. Tough neighborhood? Inflated rents? Deferred maintenance hiding the real NOI?

But cap rate doesn't tell you if the deal makes money for you. It ignores your financing, your down payment, and your loan terms. Two investors buying the same property at the same cap rate can have wildly different returns depending on how they financed it.

Use cap rate to compare assets in the same market. Use cash-on-cash to decide if it works for your wallet.

Cash-on-Cash — Your Actual Return

Cash-on-cash = Annual Pre-Tax Cash Flow / Total Cash Invested. This is the metric that answers: what am I earning on the dollars I actually put in?

Same 4-plex. Purchase: $340,000. Down payment (25%): $85,000. Closing costs: $6,800. Total cash in: $91,800.

Loan: $255,000 at 7.25%, 30-year fixed. Annual debt service: $20,892.

• Annual cash flow: $28,776 (NOI) - $20,892 (debt service) = $7,884
• Cash-on-cash: $7,884 / $91,800 = 8.59%

I want 8%+ cash-on-cash on multifamily in the Midwest. This deal clears the bar. In a 7.25% rate environment, hitting 8.59% means the property fundamentals are strong enough to absorb the higher debt cost.

DSCR — The Safety Check

DSCR — Debt Service Coverage Ratio — is the lender's favorite metric. It should be yours too.

DSCR = NOI / Annual Debt Service

Our deal: $28,776 / $20,892 = 1.38

That means the property earns 38% more than it needs to cover the mortgage. Lenders typically want 1.20 minimum for conventional loans, 1.25 for DSCR-specific loan products.

• Below 1.0: The property doesn't cover its own debt. You're feeding it cash every month from your personal account. That's not investing — that's subsidizing.
• Between 1.0 and 1.2: Tight. One vacancy or one major repair wipes out your cushion.
• Above 1.25: You've got margin. Unexpected expenses don't sink you.

The Full Sequence — Under 5 Minutes

1. 1% rule (10 seconds): passes or fails. If it fails, move on.
2. NOI (2 minutes): build the operating budget with conservative assumptions.
3. Cap rate (10 seconds): does this match the market? Red flags if way above or below average.
4. Cash-on-cash (1 minute): does it meet your minimum return with your actual financing terms?
5. DSCR (10 seconds): is there enough cushion to survive a bad quarter?

Five metrics. Under 5 minutes. Most deals die at step 1 or step 2. The ones that survive all five get a property inspection and a deeper look.

The Indianapolis Deal — Verdict

• 1% rule: $4,200 rent / $340,000 = 1.24% — passes
• NOI: $28,776 — solid
• Cap rate: 8.46% — in range for the market
• Cash-on-cash: 8.59% — above the 8% threshold
• DSCR: 1.38 — comfortable margin

This deal gets a showing. Not because one metric looks great — because all five clear the bar at the same time. That's how you avoid buying a property that looks good on paper and bleeds cash in reality.

Challenge for Today

1. Re-run your last deal. Apply all five metrics with the assumptions above. Does it still look good?
2. Check DSCR on existing properties. Any property below 1.15 needs attention — now.
3. Try the calculator at reiprime.com/calculator with a deal from your target market. See how fast you can screen it.

Resources Mentioned

• Deal Analysis Guide — the complete framework behind all five metrics and how to apply them in sequence
• Financing Your Investment Property — loan types, down payment structures, and how financing affects your cash-on-cash returns
• DSCR Loans Explained — how DSCR loans work, who qualifies, and current rate ranges
• Investment Property Calculator — run all five metrics yourself with real numbers from any listing
• Freddie Mac Mortgage Rate Survey — weekly updated 30-year and 15-year fixed rate averages for modeling your debt service