Real Estate Investing: You’re Doing It Wrong

That $150,000 spread between purchase price and ARV isn’t your profit. Here’s what most new investors are forgetting.

As of August 24, 2026, I’ve been in the real estate business for 28 years. During that time, I’ve personally bought and sold more than 100 investment properties and brokered hundreds more.

I’ve worked through the crazy market of the early 2000s, the crash that followed, the incredible buying opportunities that came after it, a more normal market, and then the frenzy that followed COVID.

Today, it’s difficult to find a really good deal.

Thanks in large part to the internet and social media, people have been “trained” to believe that they too can invest in real estate and make a fortune. And while it’s absolutely true that you can make a fortune in real estate, don’t believe everything you see.

When I first started, I helped other people find the deals and make the money. Eventually, after saving some money and using a line of credit that my then-girlfriend, now wife, was able to secure, I started buying properties myself.

Since I was good at finding properties, I also wholesaled deals to other investors. The reason those investors kept coming back was pretty simple: I found good deals.

How I found them is a discussion for another day, but the important part is that the numbers actually worked.

And that’s where I think a lot of new investors are getting into trouble today.

The $150,000 “Profit” That Isn’t Really $150,000

If you’re active in real estate investing, chances are you’re part of a wholesaler group, chat, text chain or email campaign.

A property comes across your phone looking something like this:

Purchase Price: $350,000
ARV: $500,000
Potential Profit: $150,000

Sounds great.

But are you really going to make $150,000?

Not even close.

First, let me say that there are some excellent wholesalers out there. I know some of them personally, and I know they’re good at what they do. I also know because I used to wholesale properties myself.

But remember what a wholesaler’s job is: to sell you the opportunity.

Your job is to determine whether the opportunity actually makes financial sense.

And the very first number I question is the ARV.

Don’t Take Someone Else’s ARV at Face Value

ARV stands for After Repair Value. In other words, what the property should reasonably sell for once you’ve finished renovating it.

The key word there is reasonably.

When I run comparable sales on a property I’m considering buying, I remove what I call the outliers—the highest sale in the area and the lowest sale. I’ll still look at both because I want to understand why they sold where they did, but I don’t automatically use them to establish my value.

Some wholesalers will lean heavily on the highest comparable sale available. Others may say something like:

“ARV up to $500,000.”

But what number did you hear?

$500,000.

It’s kind of like when you’re buying a car and the price is $54,900. When you repeat the price back to the salesperson—or even to yourself—you’ll probably say the car is $54,000.

That’s just how we process numbers.

So before doing anything else, run your own comps.

Because if the $500,000 ARV is wrong, everything that follows is wrong too.

Now Let’s Talk About Financing

Let’s assume the $500,000 ARV checks out.

You probably don’t have $350,000 sitting around to purchase the property with cash. And because the house needs significant repairs, conventional financing may not be an option.

That’s where what is commonly referred to as hard money, hard equity or private money lending comes into the picture. Different people use different names for it, but for purposes of this discussion, I’m talking about the same basic type of asset-based, short-term financing used by real estate investors.

The terms vary tremendously by lender, borrower and deal. In the transactions I’ve been involved with, I’ve commonly seen interest rates around 12%, origination fees of 2% to 3%, relatively short loan terms and lenders wanting a first-position lien.

I’ve also seen lenders willing to finance part of the renovation through a draw system.

And, you guessed it, better terms often come with experience and an established relationship with the lender.

That’s why you can’t simply look at the purchase price and ARV.

The money itself costs money.

For the example I’m going to show you, I’m intentionally assuming that an investor found a private lender willing to finance the entire $350,000 purchase price. I’m using a 12% interest rate, 3 points and a six-month holding period.

Your actual financing could look very different.

The lesson doesn’t.

The Costs Investors Forget

To keep this relatively simple, I break the costs into five categories.

1. The Cost to Buy the Property

You’ve got your purchase price, closing costs, loan origination points and any other financing costs.

2. The Cost to Hold the Property

Interest doesn’t stop while you’re deciding which tile you like.

Neither do property taxes, insurance, electricity, water, lawn maintenance, pool maintenance or any of the other expenses associated with owning the property.

And don’t assume you’ll be in and out in 60 days.

Could it happen? Sure.

Would I underwrite a deal assuming everything will go perfectly and I’ll be finished in 60 days?

Absolutely not.

Personally, I account for at least six months, and longer if the renovation is extensive.

3. The Cost to Renovate the Property

This is where I see people get hurt.

Your renovation budget may include flooring, kitchen, appliances, bathrooms, exterior doors, windows, interior doors, paint, carpentry, drywall, plumbing, electrical, air conditioning, roofing, landscaping, permits, engineering, debris removal and whatever else that particular property needs.

Don’t lowball your repairs to make the deal work on paper.

If you don’t know what something costs, get an estimate.

As a matter of fact, until you become VERY familiar with construction costs, make sure you have an inspection period that gives you enough time to get quotes.

Be detailed.

Repairs can make you or break you.

4. Permits and Insurance

This deserves special attention, particularly here in Florida.

Permits aren’t just a construction issue. They can become an insurance issue when you eventually try to sell the property.

For example, Citizens currently requires a four-point inspection on new applications for homes more than 20 years old. The inspection looks at the roof, electrical, plumbing and HVAC systems. Citizens also has specific documentation requirements for older roofs, including remaining-useful-life requirements once certain roof-age thresholds are reached.

That’s why I pay attention to permit history before I buy.

If you’re replacing a roof, electrical system, plumbing, windows or other components that require permits, account for the permits in both time and money.

A beautiful renovation isn’t much help if your eventual buyer runs into an insurance problem that you could have anticipated before you bought the property.

5. The Cost to Sell It

You’re not finished spending money when the contractor leaves.

You still have seller closing costs, brokerage expenses, cleaning, final landscaping and possibly staging or other costs associated with getting the property ready for market.

For purposes of underwriting this example, I’m using 5% of the sale price for brokerage costs. That’s simply the assumption I’m using to analyze this deal. Your actual brokerage costs could be higher or lower depending on how the property is sold and what you’ve negotiated.

And then there’s my favorite category:

Miscellaneous.

There will be something you didn’t expect.

I promise you.

On a typical non-luxury renovation, I usually put aside at least $5,000 for miscellaneous expenses.

Let’s Actually Run the Numbers

Let’s go back to our original example.

We’re buying a 1,500-square-foot, 3-bedroom, 2-bath home with a tile roof for $350,000.

The supposed ARV is $500,000.

On the surface:

$500,000 − $350,000 = $150,000

Looks pretty good, right?

Now let’s see what happens when we actually renovate, finance, hold and sell it.

Where Do I Get My Repair Numbers?

Before we get into the renovation budget, I should probably explain where my repair estimates come from.

These aren’t numbers I pulled off the internet. They’re based on my experience buying and renovating properties, along with what I’ve actually paid for these items over the years.

For the roof, I start with the total square footage of the home and add 15% to account for the pitch of the roof. In this example, that gives me approximately 1,725 square feet, or roughly 18 roofing squares. I then budget $1,500 per square:

1,500 SF × 1.15 = 1,725 SF
1,725 SF ÷ 100 = 17.25 squares, rounded to 18
18 squares × $1,500 = $27,000

And before a roofer reads this and tells me that $1,500 per square is too high, I know it is. That’s intentional.

I’m not trying to estimate what the roof will cost if everything goes perfectly. I’m trying to protect myself if it doesn’t. Once the existing roof comes off, I may find more damaged wood than anticipated. I may also need to replace soffit or fascia. I’d rather account for some of that possibility when I’m deciding what to pay for the property than find out later that I underestimated the roof by thousands of dollars.

For flooring, I start with the living area and add 15% for waste. On a 1,500-square-foot house:

1,500 SF × 1.15 = 1,725 SF
1,725 SF × $5 = $8,625

For windows and sliding glass doors, I count the individual openings and use $750 per opening for my initial estimate. In this example:

15 openings × $750 = $11,250

In reality, a typical window may cost me closer to $500, while a sliding glass door is generally closer to the $750–$800 range. Rather than pricing every opening individually when I’m first analyzing a deal, I use $750 across the board. It gives me a quick number that I can work with.

The A/C in this example is budgeted at $7,500 because the house has one system:

1 A/C system × $7,500 = $7,500

Obviously, a larger house with multiple systems would require a different budget.

The remaining figures are based primarily on my own experience purchasing these items and completing renovations.

Are these numbers going to be exactly right on every property?

Of course not.

Construction costs change, every house is different, and sometimes you open a wall and find something you weren’t expecting.

The purpose of these numbers isn’t to predict the cost of a renovation down to the dollar. It’s to give me a realistic enough estimate to determine whether I should be buying the property in the first place.

Once I’m under contract, that’s when I can get more specific with inspections, contractor quotes and actual pricing.

Renovation Budget

Item	Calculation	Estimated Cost
Roof	18 squares × $1,500	$27,000
Flooring	1,725 SF × $5	$8,625
Kitchen	Allowance	$10,000
Appliances	Allowance	$5,000
Bathrooms	2 × $8,000	$16,000
Exterior Door	1 × $1,200	$1,200
Windows & Sliding Doors	15 openings × $750	$11,250
Interior Doors	9 × $300	$2,700
Interior Paint	Allowance	$1,750
Exterior Paint	Allowance	$3,500
Landscaping/Exterior	Allowance	$2,500
Carpentry	Allowance	$2,000
Drywall	Allowance	$2,500
Plumbing	Allowance	$5,000
A/C	1 system × $7,500	$7,500
Miscellaneous	Allowance	$5,000
Debris Disposal	Allowance	$3,000
Permitting & Engineer	Allowance	$2,500
Total Renovation		$117,025

Now let’s add everything else.

The Real Cost of the Deal

Expense	Amount
Purchase Price	$350,000
Purchase Closing Costs	$5,250
Loan Points	$10,500
Interest/Holding Cost	$21,000
Builders Risk Insurance	$3,500
Renovation	$117,025
Property Taxes	$5,500
Sale Closing Costs	$7,500
Brokerage	$25,000
Total Cost	$545,275

Now sell the property for the full $500,000 ARV.

You didn’t make $150,000.

You didn’t make $100,000.

You didn’t make $50,000.

You lost $45,275 before accounting for the selling costs.

Once we include the $7,500 in seller closing costs and $25,000 brokerage assumption shown above:

Your actual projected loss is $77,775.

That “$150,000 profit” disappeared pretty quickly.

And remember, we’re assuming you actually get the full $500,000 ARV.

We’re also assuming the renovation stays on budget.

We’re assuming you finish and sell within six months.

We’re assuming there aren’t major surprises hiding behind the walls.

And we’re assuming the market doesn’t move against you while you’re doing the work.

That’s a lot of assumptions.

So What Should You Have Paid?

This is where real estate investing gets interesting.

The answer isn’t:

“This is a bad house.”

The answer is:

“This is a bad deal at $350,000.”

At the right price, almost any property can become a good investment.

That’s why I work backward.

I determine a realistic ARV. Then I calculate repairs, financing, carrying costs, insurance, taxes, permits, selling costs, brokerage and contingency.

Then I determine what I can afford to pay for the property while still making the return I want.

Not the other way around.

If the seller or wholesaler won’t sell it at that number, I move on.

There will always be another property.

And I actually had to learn that lesson all over again in a completely different business.

At one point during my career, I had the opportunity to open a classic car dealership. Anyone who knows me knows that cars are a passion of mine, so you can probably see where this is going.

In the beginning, I bought a few cars simply because I absolutely loved them.

That’s a terrible reason to buy inventory.

I ended up losing quite a bit of money on some of those cars before realizing that I needed to apply the exact same discipline to buying cars that I had spent years applying to real estate.

So I put a Post-it note on the wall right next to my desk. It said:

“YOU DON’T NEED THAT CAR!”

Every time someone called me with an opportunity to buy a car, I had to look at that note before making a decision.

It sounds silly, but it worked.

The point wasn’t that I shouldn’t buy cars. The point was that I didn’t have to buy that car.

And real estate is exactly the same.

You don’t need that house.

You don’t need that deal.

You don’t need to make the numbers work simply because you’re excited about the opportunity.

If the numbers don’t work, walk away.

There will always be another one.

“Using Your Numbers, You’ll Never Buy Anything”

I hear this all the time.

When I show someone how I calculate a deal, eventually somebody says:

“If you use those numbers, you’re never going to buy anything.”

And that’s only partly true.

I’ve bought plenty of properties using exactly this method of calculation.

I just buy the right properties, at the right numbers.

Real estate investing can absolutely create wealth. I’ve watched it happen, I’ve helped other people do it, and I’ve done it myself.

But you don’t make money in real estate simply because you bought something below its ARV.

You make money because you understood all of the numbers before you bought it.

So the next time a deal hits your phone and you’re tempted to convince yourself that the numbers work, remember the Post-it on the wall next to my desk:

You don’t need that house!

Sometimes, the best real estate investment you’ll ever make is the one you had the discipline not to buy.