Flip Fundamentals: Underwriting

Underwrite your flip correctly by:

1. Pulling tax record information
2. Analyzing comparable sales
3. Using the underwriting calculator for budget estimates
4. Running multiple renovation scenarios
5. Determining highest and best use

 

Underwriting makes or breaks your flip deal. I’ve seen investors miss great opportunities because they rushed through the analysis. I’ve watched others lose money because they didn’t protect themselves with proper numbers.

 

In this article, I’m teaching you how I underwrite every deal to maximize profits and minimize risk.

 

1. Pull Tax Record Information

Start with the tax records to understand what you’re working with. Tax records show your:

• Building square footage
• Lot size
• Year built
• Bedroom count
• Bathroom count
• Gross square footage potential

 

I use websites like my county’s property records portal, Property Radar, or even Zillow to grab this data.

 

The year built tells me how much work I’ll need to do. A 1920s house typically needs full mechanical updates. I budget around $100 per square foot for a complete renovation.

 

A 1960s house usually runs about $75 per square foot because the bones are better. This single detail changes my entire budget strategy.

 

Look at the lot size and zoning code too. A 4,300 square foot lot might allow an ADU in the back, which completely changes your profit potential. Check this before you waste time on other details.

 

2. Analyze Comparable Sales

Pull two sets of comps:

• Light renovation keeping the existing layout
• Highest and best use where you finish all available space

 

Start with a quarter-mile radius in metro areas, then expand to half a mile if you need more data.

 

Filter your search by:

• Year built (1960s and below if your property is older)
• Square footage range

 

I focus on properties that match mine in size, bedroom count, location, and condition. Look at sales from the past 6 months first. If data is limited, go back a year, but only if market conditions were similar or worse.

 

Pay attention to why houses sold for different prices. A house on a busy four-lane road will sell for less than one on a quiet dead-end street. Even if they’re identical inside. Location premiums and negatives matter more than most investors realize.

 

3. Use the Underwriting Calculator

Run quick budget estimates using your underwriting calculator. Then, you can spend hours on detailed plans. Input your future market value based on comps, then calculate rehab costs by square footage and scope.

 

The calculator breaks down costs for:

• Flooring
• Millwork
• Cabinets
• Paint
• Kitchen
• Bathrooms
• Windows
• Roof
• Electrical
• Plumbing
• HVAC
• Landscaping

 

It accounts for smaller houses costing more per square foot (more kitchens and baths relative to size). It also accounts for larger houses costing less per square foot.

 

Add contingency buffers for major fixers or properties with significant unknowns. This gives you a ballpark number to see if the deal is worth pursuing.

 

I bought a property recently where my initial underwriting showed $92,000 in repairs. After walking it and finding structural issues, tree removal needs, and a broken sewer line, the real number came to $220,000. But because I had multiple scenarios ready, I could still commit on the spot.

 

4. Run Multiple Renovation Scenarios

Calculate 3 different approaches:

• Light cosmetic renovation
• Mid-level updates
• Full highest-and-best-use renovation

 

Each scenario has different costs, timelines, and sale prices.

 

A light renovation might cost $100,000 and take 5 months with a sale price of $1.15 million.

 

A full renovation might cost $180,000 and take nine months with a sale price of $1.45 million.

 

Run both scenarios through your flip calculator to see which produces better returns.

 

The cheapest renovation isn’t always the most profitable. Factor in holding costs: a 9-month project that ties up your capital longer than a 5-month project. Calculate your annualized return, not just total profit.

 

5. Determine Highest and Best Use

Highest and best use means most profitable, not highest sale price. Sometimes, spending less money and selling faster produces better returns. It’s far way better than doing a complete luxury renovation.

 

Compare your scenarios side by side. Look at profit margins, holding times, and risk factors. Let’s say the light renovation gives you a 43% return in 5 months. But, the full renovation gives you 84% in 9 months. The full renovation wins on annualized returns.

 

Consider market timing too. If your project will hit the market during a slow winter season, add that buffer into your numbers.

 

Avoid These Common Underwriting Mistakes

• Don’t price based on what you spent. The market determines value, not your costs. Never set your offer price based on what you “need” to make the deal work.
• Always pull multiple comps. Also, verify why properties sold at different prices.
• Check permit timelines with your city before committing. Some jurisdictions take 10 months just to get permits approved.
• Don’t surface-underwrite deals. Take the time to dig into mechanical systems, lot potential, and neighborhood nuances.

 

I buy 50% of my properties on-market because I go deeper than other investors who just glance at photos and move on.

 

Moving Forward

Master underwriting by following these steps on every deal. If you want to learn the complete system I use to underwrite deals and flip profitably, visit ProjectRE. I share my calculators, contracts, and detailed processes. I’ve built this business by protecting myself through proper underwriting while finding opportunities others miss. And, you can too.