Price the exit before the entry
Off-market conversations invite a dangerous sequence: hear a low number, feel momentum, then work backward to make the deal fit. Reverse it. Establish a defensible exit range, subtract every cost and your required return, then create an offer band with room for uncertainty. The seller's number is a data point, not an anchor.
- Define the likely exit buyer.
- Use sold comparables, not active listings, for the base case.
- Write down the assumptions that would move your price.
Separate knowns from allowances
Your early rehab number is not a bid. It is an allowance with a confidence level. Break it into visible scope, systems risk and finish level. A roof you can see is a known. The electrical panel, sewer line and unpermitted addition are risks that deserve contingency, not false precision.
- Light: cosmetic and verified systems.
- Moderate: dated finishes plus one system uncertainty.
- Heavy: structural, water, fire or permit exposure.
Run three cases
A single projected profit is a sales pitch to yourself. Run a base case, a slower-and-more-expensive case, and a failure case. Change days on market, financing carry, rehab and exit price independently. If the deal only works when every assumption is favorable, it does not work.
Turn the model into a conversation
A credible offer explains constraints without theatrics. Show the seller what the property can support after repairs, carrying costs and closing costs. Keep the range transparent. The purpose of first-pass underwriting is not to win an argument; it is to know the maximum price before emotion makes the decision for you.
Build the cost stack
Do not hide transaction friction inside a single percentage. List purchase closing costs, financing points, interest, insurance, utilities, taxes, permits, selling costs, commissions, staging and a contingency. A line-item stack makes sensitivity work possible. It also reveals which costs you can control and which simply follow the calendar.
- Acquisition: price, title, inspections and lender fees.
- Execution: labor, materials, permits, utilities and contingency.
- Disposition: carrying time, commissions, concessions and closing.
The go / pause / pass gate
A useful first pass ends with a disposition, not a score. Go means the deal clears the base case and has a credible path to verify unknowns. Pause means one missing fact controls the outcome, so you assign an owner and deadline. Pass means the downside fails even before the unknowns are resolved. Write the reason; a disciplined pass protects tomorrow's attention.
What to ask on the first walkthrough
Walk with the model open, but observe before measuring. Ask where water enters, what was repaired recently, which rooms are used, what permits were pulled and who has keys or decision authority. Photograph systems and conditions in sequence. After the visit, revise the allowance by room and attach evidence. The model should become more specific, not merely more optimistic.