9. Deal Analysis Framework
Everything in Modules 1–8 comes together here. A deal analysis framework is a repeatable process you run on every property, in the same order, every time — so decisions are driven by numbers and evidence rather than excitement about a particular house. The goal isn't to find reasons to buy; it's to find reasons not to, before your money is committed.
9.1 The eight-step process
- Estimate realistic rent — from "let agreed" comparables, not asking prices (Module 4).
- Screen on gross yield — a fast filter to reject obvious non-starters.
- Model full costs — one-off and annual, in detail (Module 5).
- Test the finance — does it pass the lender's stress test (ICR at the stressed rate, Module 3)?
- Calculate net cashflow — pre-tax and post-tax (Modules 4 and 6).
- Run stress scenarios — higher rates, longer voids, a bad year.
- Check the downside & exit — what happens if values fall or you must sell?
- Decide — proceed, renegotiate, or walk away.
9.2 The core metrics
| Metric | Formula | Tells you |
|---|---|---|
| Gross yield | Annual rent ÷ price | Quick comparison only — not profit |
| Net yield | Net operating income ÷ price | Return after running costs, before finance |
| ICR | Rent ÷ stressed interest | Whether the mortgage passes (125%/145%) |
| Net cashflow | Income − all costs − finance | Whether you can hold it |
| Cash-on-cash return | Annual net cashflow ÷ cash invested | Return on the actual money you put in |
9.3 Worked screen — the course property
Running our £250,000 example (from Modules 2–6) through the framework:
| Step | Result | Verdict |
|---|---|---|
| Gross yield | £15,600 ÷ £250,000 = 6.24% | Passes initial screen |
| Cash required | ≈ £84,600 (Module 2) | Confirms affordability |
| Stress test (ICR) | Rent £1,300 vs 145% requirement at 5.5% | Marginal — check lender |
| Net cashflow (pre-tax) | ≈ −£259/yr (Module 4) | Fails on cashflow |
| Cash-on-cash return | −£259 ÷ £84,600 = −0.3% | Negative before tax |
| Stress at 6.5% rate | ≈ −£2,134/yr | Fragile |
On a gross-yield screen this looks like a solid 6%+ deal. Run through the full framework, it's a marginal, rate-fragile proposition at the asking price. That's not necessarily a "no" — it's a signal to renegotiate the price, increase the deposit, or find higher rent. The framework didn't kill the deal; it told you the terms on which it could work.
9.4 Decision discipline
The single rule that protects you: a deal must survive a bad scenario, not just look good in a perfect one. Walk away when the numbers only work at today's low rate, when the price leaves no margin for costs and voids, or when you'd be fully committed with no reserves on day one. There is always another property; there isn't always another chance to undo a bad purchase.
Module summary: Run the same eight-step process on every deal: realistic rent, yield screen, full costs, stress test, net cashflow, stress scenarios, downside/exit, decide. Judge deals on cash-on-cash return and survivability under stress — not headline gross yield. A framework's job is to reveal the terms on which a deal works, and to give you the discipline to walk away when they can't be met.
Educational information only. This does not constitute financial or investment advice. All figures are illustrative — model your own numbers and verify with qualified professionals before acting.