The “Good Deal” Question

Real Estate Deal Analysis & Advice
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The “Good Deal” Question

Siahna ImBusiness Member
Lender · Lakewood, WA · Member since 2021 · 86 posts · 30 votes

A property can look like a great deal on paper and still become a bad investment.

Maybe the rehab goes over budget. Maybe the timeline stretches. Maybe the ARV doesn't hold up.

What’s one number or assumption you always double-check before moving forward with a deal?

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  • G. Brian DavisPro Member
    Investor · Hatboro, PA · Member since 2016 · 3k+ posts · 871 votes
    1w

    It’s usually the projected rent. It’s easy to make a deal look good by using the highest rent you think you can get, but that can change the whole investment.

    I’d rather underwrite the rent conservatively and have the deal still work. If the numbers only work at the optimistic end of the range, I probably don’t have enough margin for error.

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    • Siahna ImBusiness Member
      OP
      Lender · Lakewood, WA · Member since 2021 · 86 posts · 30 votes
      1w

      Absolutely. Projected rent can make or break the numbers, especially when a deal is relying on the higher end of the market.

      I like the conservative approach, if the deal still works with realistic rent assumptions, there’s much more room for unexpected costs or changes. It’s better to find that out during the underwriting stage than after closing.

      What other assumption do you think investors tend to be overly optimistic about?

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  • James JonesPro Member
    Investor · Collierville, TN 38017 · Member since 2017 · 788 posts · 591 votes
    1w

    Rehab budget. It's the number I see investors get optimistic about more than any other.

    Everyone pads the rent down and calls it conservative, then turns around and prices the rehab like everything goes right. It never does. My rule: the rehab number in my underwriting is the contractor's number plus 15%, and the timeline is the contractor's timeline plus 30 days. If the deal doesn't survive that, I don't do it.

    The reason I'm strict about it: I run standardized scopes — 2/1 to 3/1 conversions, carport to master bedroom, 400-650 sq ft added — so my crews do the same work house after house. Even with that, surprises happen. On a house you've never opened up, the rehab is a guess until the walls are open.

    Rent optimism kills you slowly. Rehab optimism kills you all at once, in week three, when you're already committed.

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    • Siahna ImBusiness Member
      OP
      Lender · Lakewood, WA · Member since 2021 · 86 posts · 30 votes
      1w

      This is a great point. I think rehab is one of the easiest numbers to underestimate because it’s tempting to use the best-case contractor estimate instead of planning for what could actually happen once the walls are opened up.

      Adding a buffer to both the budget and timeline seems much more realistic. I also like the idea of using standardized scopes when possible, it gives you a much better baseline from one project to the next.

      Do you find that the 15% contingency is usually enough, or are there certain types of properties where you build in an even larger cushion?

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