Step one: decide the strategy first
The same house is a different deal depending on what you plan to do with it.
A flip is underwritten to resale value and margin. A rental is underwritten to rent and cash flow. A BRRRR is underwritten to both — the rehab and refinance up front, then the rent long term. Choose before you run numbers, because the strategy decides which numbers matter.
If you are not sure, start with the strategy that matches your capital and risk tolerance, not the one that looks most exciting on social media.
Step two: establish a defensible value
Everything downstream depends on an honest opinion of what the property is worth.
For a flip, that is the after-repair value from real comparable sales. For a rental, it is the rent the property can actually command. Pull that from comparable properties, not from the listing’s optimistic framing.
Resist the urge to nudge the value up to make the deal work. A value you cannot defend to a lender or a buyer is not a value you can build a decision on.
Step three: estimate rehab honestly
Rehab is where new investors lose money, almost always by underestimating.
Scope the work realistically, especially on older properties where systems and surprises stack up. It is safer to overestimate here than to discover the real cost after closing.
Include a contingency. The rehab number that looks tight on paper is usually the one that turns a thin deal into a loss.
- Scope the full condition, not just cosmetics.
- Add a contingency for the surprises you cannot see yet.
- When unsure, estimate high, not low.
Step four: back into the offer and decide
Only now do you calculate what you can pay — and then you let the number make the call.
With value, rehab, financing, and costs in hand, calculate your maximum allowable offer. If the seller’s price is at or below it, you may have a deal. If it is well above, that is information, not a problem to argue away.
The discipline of your first deal is trusting the process over the excitement. A clean no is a good outcome. A yes you cannot justify is how first deals go wrong.