All Forum Posts by: Jonathan Warner

@Doug P. How do you know it's wrong when I haven't even provided you the answer that it gave me? Which part of my underwriting did it give my biased information for? Seriously point it out to me in all ears. Or are you just spewing out of your you-know-what? We've already established that I'm using it as a step past napkin math, I'm double checking the anwers, and the next step is to manually underwrite it myself. I've noticed mistakes and I've manually tweaked my underwriting or repromted accordingly. 

How would it give me a biased answer for a comp report? That doesn't make any sense, but then again, nothing you say really.. does.. actually all the information it's given me is more conversative than my manual findings, and my agents assumptions. 

It sounds like you need psychological assistance considering AI seems to have hurt you in your past and maybe you are the one having trouble with bias. It sounds like you shot yourself in the foot and claimed that all guns are useless. Maybe if you learned how to use it properly you wouldn't be limping around these forums and clamouring for the good ole' days. I think you should give AI another "shot" ;)

in all seriousness, I understand AI has flaws and that why I'm here seeking assistance with my underwriting instead of contacting my agent giving the deal the go-ahead. the funny thing is, I'm really just using AI as super-Google. I'm not asking its opinion on anything really. Maybe next you'll tell me that everything was better before Google.

the irony is if you spent half the time you spend crapping on AI helping me underwrite the deal, I'd already be one step past "relying" on AI or any one source to underwrite the deal. But it's strange you have just hyper focused on one element of my post and you are just too stubborn to let it go. Oh well. Best of luck to you. 

@Doug P. It sounds like you did what I did at first which was to ask broad questions and expect it to do the task properly. I've found the trick is to take it one step further than you did, and after getting the answers and spotting the problems in its analyses, redirect and refine your prompt to be more clear about what you want and what you don't want. For example, when I asked it to pull comps for my property, it pulled from too large an area, and from houses the were sold from like 7 years ago. I refined the prompt to something more like this: I want you to pull comps for this property. Please focus on properties within the same neighborhood to were sold within the last 1-2 years. Make sure the properties are also 3br/2bath properties and if you can't find any properties given these criteria, expand the search a bit further back in time. However, if the property was sold more than 1 year ago, I'd like you to adjust the dollar per sqft average to adjust for the average appreciation in the area which we already established earlier. Please provide me an average $ per sqft for these comps and apply it conservatively to the property im looking at now." 

the prompt was actually longer than that. The trick is to prompt it correctly and precisely and to coach it to do things correctly. And again, I've said this already but the results it gives me are just one step in the process, if the numbers look good enough to pursue further, that's when I do my own due diligence do everything manually. Ok yes, if I were to just ask ChatGPT basic questions, plug the numbers into my excel sheet, and then see positive cash flow and call my agent and say "buy it now!", I totally agree with you, that would be stupid. But that's not what I'm doing.

The reason I'm here to find help underwriting the property independent of ChatGPT so I don't know why people are spending their time pew peeing AI instead of helping me xD. The point is to help me refine what I've found from ChatGPT precisely because I DONT trust it. Otherwise, I wouldn't even be here.  

Quote from @Ken M.:

Quote from @Jonathan Warner:

Hello. I'm a newbie investor with minimal experience analyzing deals. 

My agent sent me this one off-market deal yesterday and sort of got me fired up about its potential. However, I underwrote it quite conservatively and it has around -150 a month in cash flow.

Could you guys please take a look at how I underwrote it and tell me if you think I did everything properly?

1. The purchase price is around $210,000. It's a 1,000 sq ft 2BR/1Bath that has about 700 sq ft in basement space that could be converted into an extra bedroom and bathroom. I put in a conservative estimate of $50,000 for the rehab. It's ARV, based on similar comps in the area (I did this myself on ChatGPT), would be around $330,000-$340,000. I set it at $335,000.

2. A conservative estimate for the annual maintenance and repairs would be around $2,500 and annual CapEx comes out to around $1,117

- I used ChatGPT to help me with this part. It took into account the new roof and HVAC and gave me a 30-year budget estimate and annualized the costs. 

-

Expense Item	Schedule	Cost per Event	Total 30‑Yr Cost
Roof Replacement	Year 30	~$11,000	11,000
HVAC Unit Replacement	Year 15	~$7,500	7,500
Water Heater Replacements (2 cycles)	Years 10 & 20	~$2,000 ×2	4,000
Flooring/Interior Cycle (2×)	Years 15 & 30	~$3,000 ×2	6,000
Major Systems Update	Year 20	~$5,000	5,000
Routine Annual Repairs & Maintenance	Every Year (30 yrs)	~$2,500 × 30	75,000
Total Over 30 Years			$108,500

Property taxes would be $490

Insurance would be $2,100

Property management would be 10% of rent which is conservatively estimated at $1,900 post-rehab, so $190 per month and $2,280 annualized

I'd likely pay around $25 a month for garbage, so $300 annualized 

I assumed a new tenant every 3 years since it will likely be a family rental, so I estimated $63 a month leasing fee budget. 

Improvements would run me around $40,000-$50,000 so I put it in as a $50,000 budget

I assumed a 20% down payment on the purchase price at a 6.85% interest rate. 

Overall, it came out at around -$110 in cashflow. Despite it's negative cash flow, considering the rehab budget and ARV, I am still considering other ptions for the property. However, even if I were to flip it, I'd prefer the have a good exit strategy should I be stuck with the property for whatever reason. If things went sideways and I was stuck with the property, I'd be down $110 a month just hold onto it.

Any help would be greatly appreciated! 

Your comment: "I used ChatGPT to help me with this part." cracks me up. No offense intended. Instead, join up with someone with experience. Join a REIA (NationalREIA.org) ours is $20 per month as a sample.

Your numbers are wrong. This is real estate. It's always more expensive than you project and the surprises WILL happen.

I once had my cat in my arms showing it a butterfly on a leaf. Before I could think, the cat whipped out it's paw and caught and ate the butterfly. First, I didn't know my cat had a taste for butterfly. Second, the forces lurking to consume your profit on a real estate transaction disguise themselves as taxes, fees, capex, floods, winds, termites, neighbors, evictions, lawsuits, random acts and on and on.

Yeah, poor butterfly.

I understand people pew pew ChatGPT qutie a bit here. But the fact is, if you use it properly it can streamline and crawl through hours of manual research and give you the answer in seconds. If you are trying to move quickly on a deal before the compeition swoops in, this is quite valuable. I agree that everything should be verified once the information is recieved. But it was able to do the following for me in about 10 minutes. 

1. It crawled through other 3BR/2Bath listings in the same location with similar square footage and provide me with the Median list/sale prices. This allowed me to take the median sale price per sqft and apply it to my property to come up with the $340,000 ARV figure (again this is definitely better than napkin math, no?)

2. It ran a similar comp report for property of this type in this area and came up with an estimated rent range $1,900-$2,100 (I went with $1,900 to be conservative).

3. It provided a higher "optimized" rental range of $2,100-$2,200 to which I said "hmm, I wonder if people would be willing to pay that in this area to begin with?" So I used to it run another report on the average salary in this area, and to do some research on the public perception of the school district. Lo and behold, the school district is subpar and the salary average is only about $70,000, so that led me to the conclusion that a high-end rehab would go beyond what people are willing to pay for in this area and I would just be spending extra cash on a rehab that no one is willing to pay rent for. If I did ask for $2,200, I would likely have to provide concessions given this new information. I mean... It just steered me away from one bad decision there so that's pretty cool, right?

4. It even provided vacancy assumptions for the local area and suggested underwriting a moderate vanacy % into the underwriting. Again, this is something for to verifiy put it's a pretty good starting point. 

5. It made an important distinction for me that I didn't know existed, and that is "above-grade square footaage vs. below-grade square footage. That is, even if I finished out the basement into an extra bedroom and bathroom, I wouldn't be able to add the square footage to the total and I would still have to make that distinction if I were to list the house for sale again. Apprasiers generally count below-grade square footage as 60% of the value of normal square footage. That's good to know. My agent never told me that. However, I could still market it for rental with the total square footage combined. Basically, what's marketable (as functional square footage for a homebuyer) the ARV would be $340,000-$360,000. If I wanted to be super conservative and go based on the 60% value of the converted basement space provided by the appraiser, I'd put it at $300,000 ARV. This is the only area wher I didn't lean "super conservative" since I'm confident in my agents marketing abilities and I trust him when he says he could market it in that range. 

🧮 ARV Estimate for Your Post‑Rehab Property (3 BR / 2 BA)

Scenario	Equivalent Sq Ft	$/ft² Estimate	ARV Estimate
Appraiser-adjusted (60% of basement)	~1,478 ft²	$205	~$303,000
Full market-finished total (1,758 ft²)	~1,758 ft²	$205	~$360,000
Mid-range conservative case	–	$190	~$334,000

Again, not a bad starting point imo


6. It found that rents in my area are up 5-6% YoY. I still plugged in 3% to be conservative

Again, I believe it's not some magic go-to that you can trust 100%, but it provides some valuable information which needs needs to be verified and discussed with someone knowledge. That is my next step and that's why I'm here. We don't have a REIA near me unfortunately. There's one about a 3 hour drive away but that guy charges like $10,000 for personal coaching.

Quote from @Dan H.:

Quote from @Jonathan Warner:

Hello. I'm a newbie investor with minimal experience analyzing deals. 

My agent sent me this one off-market deal yesterday and sort of got me fired up about its potential. However, I underwrote it quite conservatively and it has around -150 a month in cash flow.

Could you guys please take a look at how I underwrote it and tell me if you think I did everything properly?

1. The purchase price is around $210,000. It's a 1,000 sq ft 2BR/1Bath that has about 700 sq ft in basement space that could be converted into an extra bedroom and bathroom. I put in a conservative estimate of $50,000 for the rehab. It's ARV, based on similar comps in the area (I did this myself on ChatGPT), would be around $330,000-$340,000. I set it at $335,000.

2. A conservative estimate for the annual maintenance and repairs would be around $2,500 and annual CapEx comes out to around $1,117

- I used ChatGPT to help me with this part. It took into account the new roof and HVAC and gave me a 30-year budget estimate and annualized the costs. 

-

Expense Item	Schedule	Cost per Event	Total 30‑Yr Cost
Roof Replacement	Year 30	~$11,000	11,000
HVAC Unit Replacement	Year 15	~$7,500	7,500
Water Heater Replacements (2 cycles)	Years 10 & 20	~$2,000 ×2	4,000
Flooring/Interior Cycle (2×)	Years 15 & 30	~$3,000 ×2	6,000
Major Systems Update	Year 20	~$5,000	5,000
Routine Annual Repairs & Maintenance	Every Year (30 yrs)	~$2,500 × 30	75,000
Total Over 30 Years			$108,500

Property taxes would be $490

Insurance would be $2,100

Property management would be 10% of rent which is conservatively estimated at $1,900 post-rehab, so $190 per month and $2,280 annualized

I'd likely pay around $25 a month for garbage, so $300 annualized 

I assumed a new tenant every 3 years since it will likely be a family rental, so I estimated $63 a month leasing fee budget. 

Improvements would run me around $40,000-$50,000 so I put it in as a $50,000 budget

I assumed a 20% down payment on the purchase price at a 6.85% interest rate. 

Overall, it came out at around -$110 in cashflow. Despite it's negative cash flow, considering the rehab budget and ARV, I am still considering other ptions for the property. However, even if I were to flip it, I'd prefer the have a good exit strategy should I be stuck with the property for whatever reason. If things went sideways and I was stuck with the property, I'd be down $110 a month just hold onto it.

Any help would be greatly appreciated! 

 Your maintenance/cap ex is too low because your table is far from inclusive.  Everything has a lifespan.  In 30 years the kitchen will need to be redone to achieve market rent.   Ditto the bathrooms.   Sewer lines if they are not ABS have lifespans.  Same how water supply lines.  Fences.  Hardscape.    I will say your estimate is closer than I see from many others and your approach of using lifetime and current cost is the same approach I use.

I see a re-lease fee but not a vacancy allocation.

In general at today’s rates, 1% rent ratios are still cash flow negative when properly allocating for sustained expenses.   You will be in at $260k for $1900/month rent.   I suspect this is large negative cash flow in every market in the US.

Is the $50k to build out the basement and adds $120k of value (I always use the conservative number in my underwriting, not the average).  if so this meets my rehab criteria of adding value 2x cost and a minimum of $40k sweat equity.   You would have $70k of sweat equity early.  The negative cash flow is relatively small in comparison.

I would pass, but a motivated, eager RE investor might be able to make this work.  It will not make them wealthy.  It could provide a good learning opportunity while providing some small positive return   

Good luck

 Hi Dan. I appreciate you response. I estimated everything as conservatively as I could. I ran rental rate comps on similar properties in the area and they go for around $1,900-$2,100 per month. So I plugged it in at $1,900 to be conservative. In reality I don't see this as very conservative considering the average salary in this area is around $70,000 and the school zone is subpar. If this were to become a 3BR/2Bath then I'd imagine I'd have to offer concessions to get another to pay $2,000-$2,100. This is another concern of mine for the rehab portion of this equation. Despite how well I rehab it, I imagine there is a cap on the amount of rent I could charge in the first place. That's why I'm not factoring in a potential kitchen or cosmetic rehab and just going for the bulk equity-add strategy of turning it into a 3BR/2Bath. I have to agree with you that it's shaping up to be a better flip than long-term rental but that's not really what I'm looking for unless I found an absolute unit of a deal. 

There is a re-leasing fee AND vacancy allocation of 10% in my underwriting, I just failed to mention it here. And yes it doesn't quite meet the 1% rule despite that my agent told me it could rent at $2,500 (again, I don't believe it can based on the school district and average salary in the area). 

On the CapEx, I got you there. It seems I have left quite a bit out for my projections. I see you mentioned the kitcehn, sewer lines, hot water supply lines, fences, hardscape, and bathrooms.

The napkin math estimate for the rehab came out in the range of $40,000-$50,000 so I put it at $50,000. Again I used the high range estimate for the cost and low range estimate for the income for all of these numbers. 

Dude, you seem knowledgable. Could you sit down for a very quick Zoom call with me to look at my underwriting? I think I just need to be set on the right path here and I can go from there. 

Quote from @Doug Smith:

One quick note, and I'm not trying to be a jerk by saying this...stop relying on ChatGPT to analyze deals for you. Let me give you an example. We financed a flip for a client recently. His first contractor walked off the job and he got another one. The new contractor sent him a contract with what he thought was a detailed scope of work. Instead of hiring a pro to review it, he uploaded it into ChatGPT and it left out tons of stuff including cabinetry and exterior paint. He signed the contract based on the "brilliance" that ChatGPT brings to the table. Now, we're scrambling to help him fix it. Sometimes in an attempt to save money, someone will turn to ChatGPT or post a detailed post on BP to have the peanut gallery make a make a massive, life-altering decision. Remember the saying "If you think it's expensive to hire a professional, wait until you hire an amateur." I know you're looking for inexpensive advice by using AI or posting it on a social media page, but what you posted was way, way too complex to be trusted to either. I don't want to see you lose your shirt. 

 Thank Doug, and I don't think you are at all a jerk for saying this. I appreciate your concern. I understand that ChatGPT isn't perfect and I would never rely on it to directly make such an important financial decision. I consider this and post on the BP forums to be one step past "napkin" math in decision making. The problem is, right now my professional advice is coming from my agent. I had a semi-mentor in my hometown to consult with, but this agent just started working for him last week so I don't feel I can rely on either of them to give me 100% unbiased advice on this deal. They have a financial interest in me taking the deal. Could you just tell me this: do the number you see posted above "make sense" to you, or there anything that seems out of line with realistic financial projections in this industry? Also, In your opinion, what would you do generally if you were in my shoes? Where would you seek advice from? Just a heads up, I am abroad right now so it's a difficult time for me to make face-to-face connections with anyone. -Thanks again for the reply. 

Hello. I'm a newbie investor with minimal experience analyzing deals. 

My agent sent me this one off-market deal yesterday and sort of got me fired up about its potential. However, I underwrote it quite conservatively and it has around -150 a month in cash flow.

Could you guys please take a look at how I underwrote it and tell me if you think I did everything properly?

1. The purchase price is around $210,000. It's a 1,000 sq ft 2BR/1Bath that has about 700 sq ft in basement space that could be converted into an extra bedroom and bathroom. I put in a conservative estimate of $50,000 for the rehab. It's ARV, based on similar comps in the area (I did this myself on ChatGPT), would be around $330,000-$340,000. I set it at $335,000.

2. A conservative estimate for the annual maintenance and repairs would be around $2,500 and annual CapEx comes out to around $1,117

- I used ChatGPT to help me with this part. It took into account the new roof and HVAC and gave me a 30-year budget estimate and annualized the costs. 

-

Expense Item	Schedule	Cost per Event	Total 30‑Yr Cost
Roof Replacement	Year 30	~$11,000	11,000
HVAC Unit Replacement	Year 15	~$7,500	7,500
Water Heater Replacements (2 cycles)	Years 10 & 20	~$2,000 ×2	4,000
Flooring/Interior Cycle (2×)	Years 15 & 30	~$3,000 ×2	6,000
Major Systems Update	Year 20	~$5,000	5,000
Routine Annual Repairs & Maintenance	Every Year (30 yrs)	~$2,500 × 30	75,000
Total Over 30 Years			$108,500

Property taxes would be $490

Insurance would be $2,100

Property management would be 10% of rent which is conservatively estimated at $1,900 post-rehab, so $190 per month and $2,280 annualized

I'd likely pay around $25 a month for garbage, so $300 annualized 

I assumed a new tenant every 3 years since it will likely be a family rental, so I estimated $63 a month leasing fee budget. 

Improvements would run me around $40,000-$50,000 so I put it in as a $50,000 budget

I assumed a 20% down payment on the purchase price at a 6.85% interest rate. 

Overall, it came out at around -$110 in cashflow. Despite it's negative cash flow, considering the rehab budget and ARV, I am still considering other ptions for the property. However, even if I were to flip it, I'd prefer the have a good exit strategy should I be stuck with the property for whatever reason. If things went sideways and I was stuck with the property, I'd be down $110 a month just hold onto it.

Any help would be greatly appreciated! 

Hello. I'm a newbie investor based in Alabama. I just started using BP Deal Finder tool to search for properties in my area. I'm having a bit of trouble with it though. It seems to underestimate CapEx and Maintenance significantly. It's use a rule of thumb (allocating a reserve of 5% for maintenance and CapEx respectively) which would put my property at around $1,200 for each. I understand it's jsut a rule of thumb, however, the descrepancy between that and my own Pro Forma using ChatGPT is quite sizable. I'll paste my ChatGPT entry. Please let me know if you believe this is accurate. Thanks.

2. Annual Maintenance & Repairs

A typical SFR requires 1–2% of property value per year for routine upkeep:

• 1 % → ~$2,900/year

• 2 % → ~$5,800/year

For a 2,300 sq ft house in Alabama, you can also budget $1.00–$1.50 per sq ft, or:

• $2,300–$3,450/year

Recommended starting point: $3,000–$4,000 annually, covering HVAC tune-ups, landscaping, minor fixes, and seasonal needs.

🛠 3. Capital Expenditures (CapEx)

Considering the home’s mid‑1970s era, here are expected big-ticket items over the next 10–15 years:

Component	Useful Life	Replacement Cost	Annual Reserve*
Roof	15–25 yrs	$8,000–$12,000	$550–$800
HVAC (system)	12–15 yrs	$6,000–$8,000	$400–$670
Water Heater	8–12 yrs	$1,000–$1,500	$100–$190
Flooring (partial)	10–15 yrs	$5,000–$8,000	$330–$800
Driveway/Exterior	15–20 yrs	$3,000–$5,000	$200–$330

*Annual reserve = cost / life. Total ~$1,600–$2,800/year to build a maintenance reserve.

🔢 4. Combined Budget Estimate

• Routine maintenance: $3,000–$4,000/year

• CapEx reserves: $1,600–$2,800/year

• Total estimate: $4,600–$6,800 annually, or $383–$567 monthly

Quote from @Corby Goade:

Quote from @Jonathan Warner:

Quote from @Corby Goade:

I've got a few tips- like any other business, this is a relationship based thing. Get to real estate meetups and network with people out there doing deals. Here are a few high level thoughts for you as a beginner:

-Don't lend in second position

-Don't do deals with new investors

-Don't experiment with new strategies, even with experiences investors- ie, don't jump in to a first development project with someone just because they've flipped 20 houses. 

-Start at a title company- they will help you structure liens and deeds so that your interest is protected properly. They can help make sure your contracts reflect your equitable interest in the deal. 

-Vet contractors and builders that your clients want to work with. The trades can make or break a good deal. 

There are a billion more, but that's a start. 

Good luck!

 This is great, thank you. So basically, get an attorney to put my contracts together as the first step, reviewing them with a title agency as the second step, putting the other team members together as the third step, and starting the search for borrowers as the fourth? Or do you mean for me to approach the borrowers first? 

 You bet! Finding borrowers won't be an issue, so I wouldn't worry about that piece, just making sure you have an agreement you are comfortable with and borrowers and properties you are comfortable with. Definitely vet the deals, they might end up becoming your properties. 

Best of luck!

Got it! Any tips on finding qualified (key word) borrowers in my local area? Working with an agent should help me there, correct? 

Quote from @Jacqueline Wright:

Starting in private lending can be an exciting way to get involved in real estate while leveraging your capital. Here’s a quick guide to help you get the ball rolling:

1. Understand the Process – Before lending, make sure you have a solid grasp on the private lending process, terms, and risks. Knowing the ins and outs will help you navigate deals confidently.

2. Legal Protection – It's important to have a solid contract in place, typically a promissory note and a security agreement that outlines the loan terms, interest rates, repayment schedules, and collateral (often the property being financed). A good attorney specializing in real estate can help draft these.

3. Work with Professionals – Consider forming relationships with local appraisers, title companies, and attorneys to help with due diligence. You can also ask for referrals from other lenders or investors who have worked in the area.

4. Build a Network – To get your name out there, you can join local real estate investment groups, online forums, or platforms like BiggerPockets. Networking with real estate agents and flippers who may be looking for private financing is also key.

5. Marketing Yourself Locally – Focus on word of mouth and local networking. Consider attending real estate investor meetups and sharing your lending interest. Creating a website or social media presence highlighting your lending criteria can also help attract potential borrowers.

6. Know the Risks – Be prepared to perform thorough due diligence on any borrower or property. Always make sure the loan-to-value ratio (LTV) aligns with your risk tolerance (usually 60-70% for fix-and-flip loans).

Once you're prepared with contracts and a local network, you can start talking to borrowers and agents to find opportunities. Would you like recommendations on resources or contracts?

I have responded to your DM! I’d love to discuss further. Thank you for the advice. I’m garnering that it’s best to start with contracts and a team local to my area. And the. I’ll be prepared to start generating leads of borrowers. 

Quote from @Corby Goade:

Quote from @Jonathan Warner:

Quote from @Corby Goade:

I've got a few tips- like any other business, this is a relationship based thing. Get to real estate meetups and network with people out there doing deals. Here are a few high level thoughts for you as a beginner:

-Don't lend in second position

-Don't do deals with new investors

-Don't experiment with new strategies, even with experiences investors- ie, don't jump in to a first development project with someone just because they've flipped 20 houses. 

-Start at a title company- they will help you structure liens and deeds so that your interest is protected properly. They can help make sure your contracts reflect your equitable interest in the deal. 

-Vet contractors and builders that your clients want to work with. The trades can make or break a good deal. 

There are a billion more, but that's a start. 

Good luck!

 This is great, thank you. So basically, get an attorney to put my contracts together as the first step, reviewing them with a title agency as the second step, putting the other team members together as the third step, and starting the search for borrowers as the fourth? Or do you mean for me to approach the borrowers first? 

 You bet! Finding borrowers won't be an issue, so I wouldn't worry about that piece, just making sure you have an agreement you are comfortable with and borrowers and properties you are comfortable with. Definitely vet the deals, they might end up becoming your properties. 

Best of luck!

I’ll start with the lawyer and the contract then. Thank you.