One property. Three possible exits.
A conservative analysis starts with supported numbers, makes room for uncertainty, and tests cash flow before calling a deal good.
1. Test the value, then stress it
Suppose a three-bedroom house might be worth $180,000 after a $30,000 renovation. This is a hypothetical assumption, not an actual appraisal or a Louisville market comp. Imagine three closed renovated sales of $172,000, $180,000 and $188,000. The highest has a garage and extra bath; the subject does not. The $180,000 middle sale is a starting point, not proof: review location, date, square footage and condition with a qualified local professional. Do not mechanically average dissimilar sales or use the repaired value as today’s as-is value.
Test a 5% lower resale of $171,000 and a 10% lower resale of $162,000. This is an exit-price stress, separate from the repair contingency. It does not guarantee a worst case.
Comp walkthrough: compare the details
The following are invented teaching examples—not actual sales, an appraisal or a suggested adjustment schedule. Confirm sale dates, location, size, concessions, features and condition with a qualified local professional.
| Property | Condition and features | Illustrative closed price | How to use it |
|---|---|---|---|
| Subject | Three bedrooms; needs renovation; no garage | As-is value not established | Assess present condition separately from planned finished condition. |
| Sale A | Renovated, similar size, one bath | $172,000 | Review its location and differences before using it. |
| Sale B | Renovated, similar size and features | $180,000 | Potential starting point if timing and location also compare. |
| Sale C | Renovated, garage and extra bath | $188,000 | Extra features make it less directly comparable. |
A working $170,000–$185,000 finished-value range might be explored if the additional facts support it. It is not a conclusion simply because these three prices exist. An as-is range needs evidence for homes in comparable present condition. Confirm the repair scope actually produces the condition used for the after-repair comparison.
2. Compare a flip
Assume $30,000 repairs, $3,000 repair contingency, $25,000 acquisition, financing, holding and selling costs, and $25,000 required profit. These other costs are illustrative fixed inputs and must be recalculated if the purchase price, debt or time changes. They exclude the purchase itself. Avoid counting any charge twice.
- At $180,000 resale: $180,000 − $30,000 − $3,000 − $25,000 − $25,000 = $97,000 maximum price.
- At 5% lower resale: $171,000 − $83,000 = $88,000 maximum price.
- At 10% lower resale: $162,000 − $83,000 = $79,000 maximum price.
These preserve the stated $25,000 target before income taxes, given the stated fixed costs. A 10% resale stress and a 10% repair contingency protect against different assumptions; neither is an actual bid without verified costs.
3. Test a wholesale assignment
If a capable end buyer’s total acquisition ceiling after its own downside underwriting is $79,000 and the seller contract price is $70,000, the maximum apparent spread is $9,000 before any extra costs not already included. A $15,000 fee would require $85,000 total, exceeding that ceiling by $6,000. Verify the buyer’s own numbers, funds, rights, disclosures and locally applicable rules with appropriate professionals. A contract is not a deed and a fee is not guaranteed.
4. Test a rental and refinance
The original $100,000 cash purchase, $5,000 acquisition costs and $30,000 renovation require $135,000. A hypothetical $135,000 refinance at 8%, amortized over 30 years, produces about $991 principal and interest monthly. With $210 taxes and insurance, $1,500 rent, $75 vacancy, $120 management, $100 maintenance and $100 replacement reserves, monthly cash flow is about −$96. That is a pass under Nate’s cash-flow requirement even if most cash is returned.
To test the same property against Nate’s more conservative coverage target, deduct $75 vacancy, $120 management, $100 maintenance, $100 replacement reserves and $210 taxes and insurance from $1,500 rent. That leaves $895 monthly for principal and interest. At a 1.30 target, maximum monthly principal and interest is about $688 ($895 ÷ 1.30); modeled cash flow is about $207 before income tax and any omitted costs. At 8% over 30 years, $688 corresponds to an illustrative loan of approximately $93,826, subject to lender approval.
If purchase is $80,000 with $5,000 acquisition costs and $30,000 renovation, the investor has $115,000 in before reserves. A $93,826 loan less $5,000 refinance costs returns about $88,826 if no prior debt is outstanding, leaving approximately $26,174 invested. The smaller loan improves cash flow but does not return all the cash. A different rate, lender formula, loan cap, costs or rent changes the outcome. This is expense-adjusted coverage using principal and interest as the denominator, not a claim about a lender’s PITIA calculation.
5. Which path is best?
Do not select a strategy solely because it has the highest headline spread. Verify the condition, property-specific values, rents, financing, transaction costs, title, local requirements and reserves. The rental needs stable cash flow and a viable refinance. The flip needs a realistic scope and buyer at resale. The assignment needs a qualified buyer and a lawful, executable transaction. If the evidence or downside does not support the target, investigate, renegotiate or pass.
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