What Makes a Good Deal....Good?

Question

Why do two investors buying in the same neighborhood get such different results?

Nine times out of ten, the outcome was decided before closing — in the deal analysis, the financing structure, and the exit plan.

If you're working on a deal right now, what part of the process do you find hardest to get right? Genuinely curious. Like to see your comments 👇

Idan Deutsch · Answer

The hardest part for me was realizing I was only running half the analysis.

For the longest time I was focused purely on the investor side: cash flow, cash-on-cash return, break-even rent, stress testing under different vacancy and expense scenarios. All important, but I kept running into situations where the numbers looked great on my end and then the refi didn't go as planned.

The shift that made the biggest difference was learning to underwrite the deal the way the lender does, not just the way I do. Lenders don't use your actual rent number. They haircut it to 75% and then check if that covers PITI. That's a completely different math problem than "does this property cash flow."

Now I run both sides before I commit to anything. My analysis and the lender's analysis. If only one side passes, it's not a deal. @Emilio Alvarez's point about not including financing costs is huge too. Hard money carrying costs during a 6-month rehab can eat $10K+ that never shows up in a basic pro forma.

To answer your question directly: the part that's hardest to get right is ARV. Everything downstream depends on it, and it's the number investors are most tempted to be optimistic about.

Emilio Alvarez · Answer

The 70% rule in real estate: what it is and how to use it

The 70% rule is the foundational formula every house flipper needs to know. Learn how to calculate your maximum allowable offer (MAO) and avoid overpaying for a flip.

What is the 70% rule?

The 70% rule states that a real estate investor should pay no more than 70% of a property's after-repair value (ARV) minus the cost of repairs needed to reach that value.

Formula: MAO = (ARV × 0.70) − Rehab costs

Example: ARV of $300,000, rehab of $40,000 → MAO = ($300,000 × 0.70) − $40,000 = $170,000.

Where does the 30% margin go?

The 30% buffer on a $300,000 ARV deal equals $90,000. That money is allocated across:

• Closing costs (buy + sell): typically $14,000–$25,000
• Holding costs: $500–$3,000 per month × hold time
• Financing costs: hard money points + interest, often $8,000–$15,000
• Rehab contingency: 15–20% of base estimate
• Your profit: what remains after all costs

When to use 65% or 60% instead of 70%

The 70% rule is a starting point, not a law. Adjust based on your situation:

• Use 65% for higher financing costs, slower markets, or longer hold times
• Use 60% for large or complex rehabs where cost overruns are likely
• Use 75% only for cosmetic flips in hot markets with a buyer already lined up — and only after a full cost analysis

Common mistakes when applying the 70% rule

• Overestimating ARV. If your ARV is inflated, your MAO will be too high. Pull tight comps — same neighborhood, similar size and condition, sold within 90 days.
• Underestimating rehab. Always add a 15% contingency. Unexpected issues are the rule, not the exception.
• Forgetting soft costs. Permits, architectural drawings, staging, landscaping, and utility hookups add up fast.
• Not including financing costs. A 12% hard money loan on $150,000 for 6 months = $9,000 in interest alone.

G. Brian Davis · Answer

It's underwriting. Small changes in rents, expenses, financing, or exit assumptions can completely change how a deal performs. I spend a lot of time ensuring those assumptions are realistic before moving forward.

LaMancha Sims · Answer

Thanks for the input. I hope that a lot of other ppl come in to give their view.

What Makes a Good Deal....Good?

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