As an investor, you’re likely confronted with so many deals it can feel like an impossible decision. So where do you put your dollars? How do you analyze and narrow down the different deals, to ensure you’re making the best investment possible?
With the following criteria, you can determine the best possible deals for you.
Tips for Analysis
- Is it Really an Investment?
When it comes to finance, there are really three things you’re doing: saving, investing, or speculating.
And since we’re talking about investments, you only need to discern between two. Are you truly investing or are you speculating? This is an important question to get out of the way when you’re looking at deals.
What I mean is…are you making an investment with a solid return, or are you speculating the possibility of a return? Just think of the qualified retirement plans in the wall street casino. Is it an investment, or a speculation?
2. Does it Align With Your DNA?
I’m talking about your investor DNA. Every one of us has our own specific DNA, which can help us identify deals that would work for us. This is a combination of how much risk you’re willing to take, your understanding of different markets, and your overall investment philosophy.
If a deal isn’t aligned with your DNA, it’s probably not the best fit.
3. Where is the Asset on the Asset Cycle?
Being knowledgeable about the assets is important in any deal analysis. Where is the asset in its particular cycle?
Let’s just say real estate is really hot and at the top of its cycle, but gold and silver are at the bottom of their asset cycle. Those at the bottom probably aren’t looked upon very favorably, but from the bottom of the cycle they can only go up. If something is nearing the top of its cycle, however, it’s often due to crash.
Timing is everything, and good timing is dependent on an understanding of asset cycles.
4. What’s On Trend?
Knowing what’s on trend goes hand in hand with asset cycles—what’s attractive in one state might be a disaster in another state. The types of popular real estate in Florida could be tanking in Texas.
Knowing (and understanding) what’s going on economically, politically, and demographically will go a long way in analyzing these trends. Even world politics and events can lend insight into regional trends. You’ve got to keep your finger on the pulse.
5. Do You Understand the Deal?
This is the fun part. Once you’ve assessed the points above, it’s time to look at the deal itself.
Primarily, do you understand it? How simple or difficult is the project? Can you explain it to someone else? Is the deal easy to get in or out of?
Answering these questions and comparing them to your DNA will be helpful. Maybe the ease with which you can enter or leave the deal is a red flag for you. Maybe it’s not.
Here are some additional considerations when determining your understanding of a deal:
- Where is the opportunity in the deal? Is there a competitive advantage?
- How much control do you have over the investment?
- Is this a unique deal?
- Are you a limited partner or an owner in the deal?
- Is it a debt play? An equity play?
- Is the investment liquid or illiquid? (Will your money be locked up?)
- What is the upside, and how do we protect the downside?
- What is the timeframe of the investment, and how quickly do you get a return?
- How does it fit into your tax strategy?
6. Who Are Your Partners?
You know yourself, but you don’t want to get into business with the wrong people. Knowing their history and their track record goes a long way in determining the potential success of the deal.
Are they reputable, trustworthy? Do they know what they’re doing?
Only get into business with people you trust.
7. What Does the Financing Look Like?
The price of the deal isn’t necessarily as important as the financing. Is there some seller financing available in this deal, and is the deal open to more creative financing?
Knowing how the deal can and will be financed will either open you up to opportunities, or severely limit you.
8. What’s the Cashflow Like?
If you’ve followed me long, you know cash is not king, cashflow is king. So what type of cashflow does the investment provide, and how quickly does it provide cashflow?
Is it tax advantaged cashflow?
For example, if you’re sitting on a few deals near the end of the year, you may be looking for an investment that provides immediate cashflow AND tax benefits. You may be looking for an energy investment instead of a real estate deal. And when January rolls around and you’ve got some more options, real estate will be a better choice.
9. Compared to What?
So maybe you’ve found the perfect deal. It checks all the boxes, fits your personal investment DNA, and by all accounts looks to be promising. But…you have other deals available. Resist the urge to jump on the perfect deal, and compare it to what’s on the table.
As demonstrated above, just because a deal is great doesn’t mean it’s a great time of year from a tax standpoint. And maybe taking a different deal will allow you do something even better with the “perfect” deal.
Avoid jumping the gun too quickly, and do a full analysis of all available deals.
Take Your Time
Overall, this is just a quick and dirty look at how to analyze deals. By doing your proper due diligence, you can ensure that you choose the best deal for you at the best time. Don’t feel pressured to take something just because it’s been offered—make sure you know exactly what you’re getting yourself into.
You can listen to my new podcast, Cashflow Investing Secrets here.
Live your Freedom, Live Your Legacy, On Your Own Terms,
M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/
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