How I Assess a Property (And Why I Passed on This One)

TLDR

Most flippers only study the deals they bought. I study the ones I passed on more. This is a real property a community member sent me, the exact checks I ran on the walkthrough, the numbers that came out the other side, and why the math said “no” at the wholesaler’s asking price.

Table of Contents

• The Setup
• Walking the Photos
• Building the Quick Scope
• Running the Numbers
• The Real Question: Would I Buy This?
• Why I Passed

The Setup

A community member sent me a wholesale deal to look at. Single family house in a nice neighborhood out west. Converted garage. Pool in the back. The wholesaler had pictures and a short video. That is usually all you get before you have to give a number.

The arv he was estimating was $500,000 to $550,000. Wholesaler was asking somewhere around $330,000. The question was simple. Is this a deal or not.

I do not need to stand in a house to know the answer. I need pictures, a rough square footage, a neighborhood, and a calculator. That gets me 90% of the way there. The last 10% is walking the house to catch things the pictures hide, and that only matters if the first 90% pencils out.

If the math fails on paper, it does not matter how pretty the house is in person.

Walking the Photos

When I look at property photos, I am not looking at decor. I am looking for three things. What has to come out. What has to go back in. What is weird and might cost me.

The stucco on the outside had some damage. Not a big deal in most of the country. In the desert, where this house was, stucco is everywhere and there are plenty of contractors who do it. If you are in a market where nobody does stucco, that same repair gets expensive fast. Location determines bid size.

Popcorn ceilings inside. Scrape them. That is a known line item, not a surprise. New floors throughout. New paint throughout. Converted garage that became a living space, with its own set of bath and vanity and flooring. Cabinets in the kitchen were old and ugly. Either new boxes or new fronts.

Then I saw the pool.

Common Mistake

Pools feel like a bonus. They are actually a budget line. Specialty contractors, specialty prices. If the neighborhood has pools and you are keeping it, you are paying a premium. If the neighborhood does not, fill it in. Either way, put real money against it in the quick scope, not a wave of the hand.

The neighborhood had other pools. That told me filling it in would hurt resale. So I kept the pool, budgeted to refinish it, and wrote $15,000 in as a placeholder. Specialty work, specialty price, and that is before I even know what the equipment looks like.

Back inside, I saw a small space heater sitting in a room. Could be decorative. Could mean the hvac does not heat that corner. I do not know yet. I do know I always carry budget for mechanical work whether I think I need it or not. If I do not use it on HVAC, I use it somewhere else. Something always comes up.

On the outside of the house, I saw wood rot and water staining near the stucco damage. Inside, there was a ceiling stain in the living room right below where a pergola attached to the roof near a chimney wall. That is classic flashing failure. Water getting in where the roof meets something vertical. The roof was replaced six to ten years ago according to the wholesaler, so it is not a full replacement. It is a targeted repair plus drywall.

A staining pattern tells you where to look. A converted garage, a weird pergola, a chimney flashing, a bad gutter, those are water entry points, not decorative features.

Building the Quick Scope

A scope of work at this stage is not a bidding document. It is a budget pulled together fast so I can price the deal. I refine it later if the deal survives the math. Most do not.

Here is how I categorized this house.

The building was 1,900 square feet with two full baths and no halves. That drives most of the per-foot math.

Pro Tip

When you build a quick scope, always round up. Always add a little juice. You can come down later with a sharp bid and a clean walkthrough. You cannot magic money into a budget after you have closed. Overshoot on purpose.

Scope comes out with a number I believe in. Not a bid. A budget. That is what gets plugged into the calculator.

Running the Numbers

The flipping calculator takes the rehab number, the arv, a target acquisition price, a rate of return, a holding time, and the cost of capital, and it spits back whether a deal makes sense.

I punched in these inputs:

At $280,000 all in, the deal spit out around $63,685 of profit after rehab, interest, points, closing costs, and the 15% return on the cash stack. That is a real deal.

The wholesaler was not asking $280,000. The wholesaler was asking around $330,000.

Now it gets interesting. I started feeding the calculator higher acquisition numbers to see where the deal cracks.

• At $325,000 acquisition, profit drops to about $33,000.
• In this case, the community member is lending himself the money, so he has no points and no interest rate. Back those out, and at $335,000 the deal still makes a real number.
• At $330,000 from an outside lender, no deal by my calculator.

The asking price is not a price. It is an opening number. The calculator tells you what you can actually pay.

This is why you price the deal before you negotiate. You cannot counter what you do not know.

The Real Question: Would I Buy This?

Once the math is on paper, the buy decision is not a math decision. It is a risk decision. It comes down to two things. Safety and bandwidth.

Safety is about downside. I do not buy for the upside. I buy for what happens when the upside does not show up. Run the ugly case.

Here is the ugly case for this property.

Even on that stack, this property still produces roughly $25,000 to $30,000 of profit because the buyer is bringing his own cash and not paying interest or points. That is not a disaster case. That is a bad case with a livable ending.

If my worst case leaves me with $25,000 to $30,000 in my pocket, I have seen a lot worse.

Key Concept

A deal is not about how big the best case is. A deal is about how ugly the worst case is. Protect the downside, the upside takes care of itself.

Now bandwidth. Do I have a plethora of deals in front of me right now, or is this the only one. If this is the only one, and the neighborhood is solid, and the worst case still pays me, I take it at the price where the downside holds. If I have ten other deals, I sharpen the pencil hard, counter at $290,000, and if they say no, I walk without a second thought.

Why I Passed

For the community member who sent me this deal, at $330,000 from a wholesaler, with an outside lender, it is not a deal that fits in the calculator. Full stop.

It becomes a deal when you remove the wholesaler spread. It becomes a deal when you remove the cost of borrowed capital. It becomes a deal when the ARV lands a hair higher. It becomes a deal when the rehab comes in a little cleaner.

Those are not things you can count on from the outside. Those are things you earn by going direct to seller, by controlling your own capital stack, and by knowing your rehab number cold.

You will not find deals like this on the market or through wholesalers at prices that work. You find them by going direct to seller.

That is the honest answer. The wholesaler pipeline will feed you a steady diet of deals that are $20K to $50K too expensive. The deal sitting at $280K is not sitting on a wholesaler’s list. It is a letter you mailed, a cold call you made, a neighbor you met at a funeral, a seller who called you back because your name is on a sign down the street.

The pass on this property is not a failure. It is the filter working. The calculator did its job.

FAQ

How do I know when to pass on a deal as a beginner?

Run the numbers the same way every time. If the calculator does not produce your target profit with conservative rehab and a realistic arv, pass. Beginners lose money by forcing deals they already know are thin. Your first deal being a no is fine. Your first deal being a loss is not.

What is a quick scope versus a real scope of work?

A quick scope is a budget you build in 20 minutes from photos and a video, with room for error baked in, so you can price the deal today. A real scope is the bidding document you build after you have walked the house, which is what your contractors use to give you firm numbers. Quick scope gets you to yes or no. Real scope gets you to closed.

How do you budget for a pool in a flip?

Treat a pool as a specialty line with specialty pricing. Refinishing a pool is not something most of your general contractor bench can do. If you are keeping it, put real money against refinishing, equipment, and inspection. If the neighborhood supports it, fill it in and add square footage in your backyard scope instead.

Why does the wholesaler spread kill most deals?

The wholesaler has to make their number between the seller and you. That spread is real money. On an average flip, it is the difference between a solid deal and a marginal one. Going direct to seller removes that spread and hands it back to you. That is where consistent deal flow comes from.

What reading am I doing on the walkthrough that is not just a rehab checklist?

Water paths. Look at the outside of the house. Find where water hits the roof, the walls, and the ground. Then find the matching damage on the inside. Stucco damage plus wood rot plus a ceiling stain below a pergola is a story about water. The scope follows the story, not a checklist.