For a beginner investor or a landlord looking to grow their portfolio, relying on provided data can be the most dangerous part of the deal. Whether it comes from a wholesaler, an agent, or a marketing email, the numbers you receive are often "best-case scenarios."
In this video, TrustArt Realty sits down to discuss the "Golden Rule" of analyzing investment deals: Trust but Verify.
Want to see the full episode? Click here to watch the full podcast on "How to Stop Contractors from Stealing Your Money and Leaving Jobs Unfinished"
The Danger of "Fluffed" Numbers
As a beginner investor, you rely on information flow. You receive emails, texts, and calls presenting deals with attractive metrics:
- Buy Price: What you pay.
- Rehab Cost: What it costs to fix.
- ARV: The After Repair Value.
However, as discussed in the video, wholesalers and agents are incentivized to sell. Often, they will:
- Push the ARV: They might use comparable properties (comps) that are too far away, significantly larger, or in a better micro-neighborhood to justify a higher value.
- Underestimate Construction: They often quote "cosmetic" rehab prices for jobs that require structural or major mechanical work.
The Investor's Safety Formula: How to Verify
To protect your capital, you must perform your own due diligence. You cannot treat the numbers provided as facts; treat them as variables that you need to test.
The "Trust but Verify" Approach
When running your numbers for a flip or a BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy in the Philadelphia market, use this conservative formula:
"Always UNDERESTIMATE your After-Repair Value (ARV) and OVERESTIMATE your Rehab Costs."
Why This Works
If you calculate the deal using a lower sales price and a higher construction budget, and the math still shows a profit, you have built in a safety margin.
- Scenario A: The market stays flat and construction goes over budget. Because you overestimated costs, you still break even or make a small profit.
- Scenario B: You sell for the actual market value and manage construction well. The difference between your conservative numbers and reality becomes bonus profit.
Summary for Philadelphia Investors
If you walk away from a project selling it for more than you estimated, or spending less on construction than you budgeted, you win. But if you buy based on a wholesaler's optimistic numbers, you leave yourself zero room for error.
To learn more about protecting your investments from bad numbers and unreliable contractors, check out the full episode:
Watch the Full Episode Here
Are you looking to acquire rental properties in Philadelphia but aren't sure if the numbers make sense? TrustArt Realty helps investors verify rental projections and manage assets for maximum cash flow.
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