We have a strict underwiring process to ensure we provide only the best investment opportunities. The following categories and data are our target values for providing great investments.
1. Market & Neighborhood Analysis
We only acquire properties in high-demand areas with strong investment potential. To determine a viable market, we analyze:
- Median Home Prices: We target properties at or below 70% of the area’s median price for strong appreciation potential.
- Population Growth: The area should show at least 1.5%+ annual population growth over the past 3 years.
- Job Market Strength: Employment should be growing with multiple strong industries (e.g., healthcare, tech, manufacturing).
- School Ratings: Higher-rated school districts tend to attract better tenants and buyers.
- Rental Demand: We ensure vacancy rates are below 7% and rental price growth is at least 3% per year.
2. Comparables & ARV Calculation
We determine a property’s After Repair Value (ARV) using recent comparable sales (comps) in the same neighborhood. Our process includes:
- Radius: We analyze comps within 0.5 miles of the subject property.
- Sale Date: Comps must have closed within the past 6 months (3 months in fast-moving markets).
- Similar Features: We compare properties with matching beds, baths, square footage (±15%), lot size, and year built (±10 years).
- Condition Matching: If the property requires heavy rehab, we compare it to fully renovated homes in the area.
- Price Per Square Foot (PPSF): We take the average PPSF of at least 3 comps to determine an accurate ARV.
3. Repair Cost Assessment & Rehab Scope
A crucial part of our underwriting is estimating rehab costs accurately to protect investor profit margins. We categorize renovations as follows:
- Light Rehab: Paint, flooring, minor kitchen/bath updates, fixtures. Typical budget $15,000 - $30,000
- Moderate Rehab: Kitchen remodel, bathroom updates, new roof, minor HVAC/plumbing/electrical work. Typical budget $30,000 - $60,000
- Full Rehab: Full gut renovation, major structural issues, foundation repair, new systems. Typical budget $60,000 - $120,000+
4. Maximum Allowable Offer (MAO) Calculation
We determine the highest price we can offer for a property while ensuring strong investor returns. The standard wholesale MAO formula is:
MAO = ARV * 0.70 - Repairs
5. Rental Market & Cash Flow Analysis
For buy-and-hold investors, we ensure the property meets cash flow and return thresholds by analyzing:
- Market Rent Comps: We use at least 3 leased comparables to determine achievable rent.
- Cap Rate: We aim for a minimum 7%+ cap rate in most markets.
- Cash-on-Cash Return: We target at least 12%+ annual cash-on-cash return.
- Gross Rent Multiplier (GRM): Should be under 10 for strong rental value.
6. Exit Strategy Assessment
We ensure multiple exit strategies are viable:
- Fix & Flip: Property can be resold within 6 months for at least a 20%+ ROI.
- Buy & Hold: Property cash flows positively with at least 1.2x rent-to-mortgage ratio.
- BRRRR Method: Investor can refinance and recover at least 75% of capital invested.
