What I'd tell myself before buying door #1

Question

What I'd tell myself before buying door #1 is simple: run the numbers first and do not talk yourself into a bad deal.

I buy BRRRR single-family in Memphis under $100K, looking for ARV $180K-$265K. If the rent does not hit the 1% rule, I walk. For a 3BR+, Section 8 rents here run $1,395-$1,950, and that rent has to carry the deal after the rehab and refinance, not before.

Second, bedrooms matter. A 2/1 to 3/1 or a 3/1 to 4/2 conversion can change the rent and the value, so look at the house for what it can become, not just what it is today.

Third, plan the refinance on day one. I use DSCR at 70-80% LTV, so the rent has to work at that loan, not at a best-case loan.

Fourth, deal flow is the bottleneck. One house will not change your life if you stop looking after you buy it. Keep looking.

And I never put earnest money down, so I protect myself before I close.

What is the one thing you wish somebody had told you before you bought door #1?

Simon W. · Answer

Nice breakdown. The piece I'd add is to define "all-in" the same way every time. Purchase price is only part of it. Closing costs, rehab, and the interest and carrying costs during the rehab usually all count.

Say you buy at $90,000, put in $40,000 of rehab, pay $6,000 in closing costs, and carry $4,000 of interest and utilities. That's $140,000 all-in, not $130,000. On a $190,000 ARV, a 75% refi is $142,500, so you're about even. Leave out the carry and closing costs and the same deal looks like it leaves cash in.

It also matters for taxes. Most of those costs generally go into the property's basis, which sets your depreciation later, so tracking them by property from the first day saves a lot of cleanup. Planning the refi before the buy fits with this, since the lender will look at your numbers anyway.

Ametria Chaney · Answer

James, what a gift of a thread for beginners — your list is basically a masterclass in buying discipline. The one thing I'd add for someone buying door #1: fall in love with the numbers before you fall in love with the house. First-time buyers tour a home, picture their furniture in it, and then try to make the math work backward. Investors who last do it the other way — the deal has to pencil before the showing even matters. And a practical one from the transaction side: get your financing team lined up before you need them. Knowing exactly what your lender requires — reserves, seasoning, appraisal standards — before you write an offer saves more deals than any negotiation tactic. The buyers who close smoothly are the ones who did the boring paperwork early.

James Jones · Answer

@Matthew Morrow @Drew Sygit — agreed on both counts. The purchase price decides the deal before the rehab starts, which is why I buy under $100K and let the 1% rule tell me no.

Drew Sygit · Answer

Don't pay asking price!

Matthew Morrow · Answer

@James Jones me again. The one I'd add is that the purchase price is the most important number of the whole deal. Overpay and you're behind no matter how good the rehab or the refi goes. The second is the deferred capex. I learned the hard way to assume the last owner didn't take care of the big stuff the way I would, and to come in with reserves for it. Agree on deal flow too. Most of my early BRRRR deals came from driving around, letters, and talking to owners directly, and it only worked because I kept doing it after the first one closed.

James Jones · Answer

Good question, Noah, and you're right about how the lender underwrites it — lower of the lease or the appraiser's market rent. That's exactly why I don't underwrite to the top of the band. My Section 8 rents run $1,395 to $1,950 for 3-bedroom-plus, and I run every deal at the low end before I buy. If the rent the lender will credit comes in soft, the deal still has to carry a DSCR loan at 70 to 80% LTV on a 30-year amortization. If it only works at $1,950, I pass and keep looking. The appraisal can disappoint you; the underwriting shouldn't.

Noah Wright · Answer

Your list covers most of what people learn the hard way, so I'll add the one I'd have wanted. The rent that sizes your refi isn't the rent you collect, it's the rent the appraiser writes down. Most DSCR lenders work off the lower of your lease and the appraiser's market rent figure, so a Section 8 tenant paying $1,950 can still get counted lower if the rent comps don't back it up. Some programs will use a voucher lease above market and many won't, so ask that before you buy, not after the tenant moves in. The deal you underwrite and the deal the lender underwrites aren't always the same deal. Have you had an appraiser come in under your HAP rent yet?

What I'd tell myself before buying door #1

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