digest
Short Summary
Main recommendation: Treat every deal as a detective case: peel back the layers, test assumptions (comps, rents, condition, permits, and market direction), and rate it rather than trusting the presented numbers. Hosts Jamil Damgy and Pace Morby rate six deals as "10 or not," showing how a surface-level 10 can drop sharply after due diligence. The episode also suggests getting other investors to review your deals before committing.
Key Points
- Stale comps can overstate value: an Avondale, Arizona comp that sold for $715,000 in March 2022 was downgraded from a 10 to a seven because the market had shifted.
- Negative equity matters: a Florida short-term rental with a $5,000 seller payment looked strong (about $1,500 monthly net cash flow), and despite the $575,000 mortgage exceeding the $550,000 retail value, Jamil still rated it a nine because of the cash flow.
- Ignoring highest and best use can undervalue a property: a Charlotte fix-and-flip at 76 percent of ARV was initially rejected, then reconsidered as a new-construction project with neighboring new builds worth $1 to $1.5 million (Pace separately mentioned a $1.1 million potential value).
- Market direction can erase a bargain: a Maricopa subject-to deal lost value as nearby iBuyer inventory cut prices, with Pace estimating a $100,000 loss (25 percent of ARV).
- Under-market rents are a hidden upside: a Phoenix six-plex had five units at $1,200 per month, while the vacant unit tested at $1,700, meaning all units were under-rented by $500 each.
- Hidden permit issues can turn a "triple digit flip" into a loss: an Atlanta house had 1,200 square feet of unpermitted construction, meaning the deal could require a teardown.
Details Worth Noting
- Concrete instructions:
- Check comps for their date and market conditions. The Avondale comp was from March 2022, before the market change.
- Calculate net equity before buying. For the Florida deal, add the seller payment and closing costs to the cost basis, then compare the mortgage balance to the retail value.
- Evaluate ARV percentage in context. A 76 percent ARV was rejected, but the "highest and best use" (new construction) changed the assessment.
- Test rents against market rates. Run a test on the vacant unit to determine its market rent before pricing the property.
- Verify permits and square footage before finalizing. Confirm whether any square footage is unpermitted and what a teardown would cost.
- Monitor nearby inventory and price drops, especially iBuyer and Opendoor/Offerpad listings, before buying in outskirt markets.
- Get other people to review deals. Jamil suggests collaborating with other investors to have others find the "mold" and "breadcrumbs" in a deal.
- The Florida short-term rental deal was an already operating, renovated, and furnished property, so the hosts did not need to add significant renovation costs.
- The Charlotte new-construction approach was described as not suitable for everyone because it requires permits and long-term development.
- The Maricopa deal was a subject-to purchase with about $15,000 in renovations and a $400,000 ARV, locked up at $250,000, on a 2010-built home. The seller was given a couple thousand dollars to move on.
- The Atlanta deal's purchase price was $181,000 with a $400,000 ARV, and the hosts noted that an unpermitted addition could make the net outcome much worse.
Bottom Line
Surface numbers such as comps, ARV spreads, and cash flow can mislead; the real value depends on up-to-date market data, permits, rents, and whether the debt is underwater.
