Why this model matters

Big investment funds build models, including this one, to make sure they do not overpay for anything. I know some of you will say “oh, but the big hedge funds DID overpay for property back in my market in 2022” to which I say - the big institutional investment funds might have paid more than you would have, but they were able to raise billion of dollars from investors and buy thousands of properties and earned some pretty great returns along the way. How did they know that it would work? How did they know which properties were relatively undervalued and which would produce the returns they needed? This model.

Private equity funds spent thousands of dollars paying full time analysts to build these models from scratch. I was that guy, and I got paid $8,300 to build this model for my last fund - and now I’m handing it to you for the grand sum of $0 dollars.

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Watch this video and I’ll walk you through how it works, why it works that way, and how you can use it to make money buying investment property.

What does this model actually do?

At it’s core, this model answers one question - What is this property actually worth, to me? Not what does the seller want, or what does Zillow’s broken algorithm think it is worth, and not what some “expert” on Bigger Pockets thinks you can get for it.

What can I pay for this, and get the return I need?

This model takes the things you know about the property - purchase price, rent, property taxes, financing terms, renovation costs, and a bunch of assumptions, bumps them all together and spits out the things you should actually care about - cash flow, yield, profit, and returns.

It shows you what happens if rent ends up being $100 less than you thought it would be, or if the renovation is $10,000 more than expected, or if you get a screaming deal and buy it for 20 grand less than you thought you’d have to pay. This is how institutional investors look at deals. You don’t need to be a Blackstone trained genius, you just need a consistent framework to help you make decisions.

I was paid $8,300 to build this model for my last fund, and I’m giving you a copy for free.

Subscribe to The Comps and I’ll send it to you. Every post comes with something genuinely useful — models, datasets, calculators, frameworks, and other tools I’ve actually used. And I promise I won’t spam you with AI-generated garbage.

Key Formulas and Investment Concepts

If your heart started fluttering when I was talking about formulas, math, and financial returns, then read on, fellow nerd.

To get the most out of this model, you’ll need to understand some of the financial metrics I used. These are standard across real estate investment - learn them once and they’ll serve you forever. Yes, there’s math involved. I’m not sorry.

Net Operating Income (NOI)

NOI is a measure how how much money you make, after expenses, on an investment. If you lease out a property for $1,000/month and pay $100 in total expenses each month (utilities, property manager, etc), your EGI was $1,000, but you actually only made $900 - your NOI.

Note - debt service, capital expenditures (capex), taxes, and a couple other things are intentionally excluded from Opex because they are NOT Opex. They go “below the line”, the “line” being NOI. You can have an investment that makes $900 in NOI and loses money every month. If your stuff ain’t working, don’t buy more until you figure it out. Write that down, it’s pretty wild how many people I’ve seen making this rather obvious sounding mistake.

Capitalization Rate (Cap Rate)

Note 1 - cap rate is a measure of returns - I use this to quickly compare unlevered yields across different properties and markets. I can buy a house in Phoenix at a 4.8% cap rate, and a house in Birmingham at a 6.8% cap rate - I get more money each month, relative to how much I spent on it, in Birmingham, than I do in Phoenix.

Note 2 - cap rate is a measure of risk - the reason why you might be willing to buy a property in Phoenix for 100k knowing you’ll only get 4.8k in NOI each year when you could spend the same 100k in Birmingham and get 6.8k in NOI each year is because Phoenix is a bigger, less risky market, with more demand to buy that house back from you, later on. Theoretically, you’re more likely to have issues of some kind in Birmingham than you are in Phoenix. Lower cap rates imply a less risky investment.

Internal Rate of Return (IRR)

If “profit” is a way of measuring how much money you make, then IRR is a measure of how fast you make that money.

Example: you make a 20k profit on a 100k investment deal (hypothetically you bought it for 80k, invested 20k into renovations, and sold it for 120k), that’s great! Actually it’s only great if you did that in less than 1 year - that would be a 20% IRR (20% profit). If it took you 5 years, your IRR is only 3.7% - not so good. Super simplified, it’s the annual interest rate you earn for every dollar you invested, but adjusted to reflect the Time Value of Money.

If you are a math nerd like me, IRR is formally defined as the discount rate that sets the Net Present Value (NPV) of all cash flows equal to zero. You will never need to be able to reproduce this in real life, with the only exception being possibly a hiring interview if you want to work at Blackstone or if you’re in a Real Estate Financial Modeling 310 course at your favorite University. Go Cougars!

Unlevered IRR measures the return on the asset’s cash flows assuming 100% cash purchase, ignores debt.

Levered IRR measures the actual return on equity after accounting for debt service and loan principal paydown at exit.

This letter walks through the underwriting, modeling, and returns for one house, and then discusses:

• Why luxury homes might be a better risk adjusted bet than cheap, inexpensive homes with smaller payments;

• What the data is saying about the different spots in the market - high, low, and middle pricing;

• Why real estate investors haven’t always chased these; and

• Why they should.

841 E Hayward - The Case Study

There’s a neighborhood in Phoenix that I love. The area is north-central Phoenix, and the specific area I love is in-between the 7’s. Phoenix was laid out in a grid - Central Ave runs north and south up the middle, Streets going east and Avenues west. Everything between the 7’s, 7th Ave and 7th Street, from roughly Northern all the way down to Downtown Phoenix, is downright charming.

They planted big trees here, in the 50’s and 60’s when these lots were built. They were largely set up with flood irrigated lots, and the lots are bigger, and don’t run in straight lines. The result is a delightful neighborhood of streets that have turns and bends, are green, verdant, have mature trees, average temperatures roughly 10 degrees less than the concrete and rock covered suburbs, and are increasingly more expensive year after year. As you can imagine, in a hot desert, anything green and cooler is a popular spot. On one street in the 7’s is 841 W Hayward, the house I just acquired.

The Plan

Expand the house from 1720 sqft all the way up to 2390. This will allow me to make it a true modern 4/3 floor plan - 2 primary bedrooms each with their own en-suite bathroom, two additional rooms that share the hall bath, a new inside laundry room, and a brand new butlers pantry that will be a delight to cook in. It’ll also convert the carport to a full garage, and remodel the pool area so it’s fun to hang out.

The Underwriting Model

1.29M exit is the stretch price but it’s definitely in the realm of possibility. I’m much more likely to end up selling for 1,095M or something in that order. Even so - that’s still a 250k win. Play with this model here and tell me what you would do. It looks like this and should prepopulate with some data, which you can change. Give it ago.

Open this model here (cool little micro tool I built for myself). It even has some comps that I’m leaning into. Check it out.

Have a deal you’re weighing? Send it to me and I’ll send it to you in this same model.

Why The Big Flip Might Be The Safer Flip

Most investors think cheap homes are the safer play - lower downside risk. If it all goes wrong, you’re only out 250k, instead of 750k. This might be true - but that’s the sort of risk underwriting you only consider if you think you’re on the edge of one of the great market tumbles in history, like the day before the mortgage crisis hit, or the day before Black Friday leading into the Great Depression. For most of us, the actual risk is bracketed by the value of the real estate we bought - and it only goes as deep as the mistake we make, which on a normal house might top out at 100k. With that perspective - on a 250k flip with a 30k margin, 100k is dangerous, while it’s kinda a non-issue on a flip with a 1.2M sale price and 280k in margin. Worst case scenario you just make less money, instead of going completely upside down.

What the Data Says: High, Middle, Low

This plays out in various places across the country, but let’s use Phoenix as the sample market. Overall in Phoenix, it’s a buyers market. The Cromford index was around 81 at mid-year, firmly in buyers market territory, with supply outpacing demand. The imbalance is driven by demand weakness, not excess supply. We all can see that there are not enough people buying.

If you segment all of Phoenix into price tiers, you see a very different story. Over the last 12 months, you get this:

Both prices AND sales volume are up on the $1M+ cohort, and either flat or down elsewhere.

Why Investors Haven’t Chased These

It takes more capital, more timing, more equity, and more skill. The construction projects are bigger, and the number of players you need expand (architect and designer just don’t pencil on 35k flips in the 400k price point).

The buyer pool is smaller. There are fewer buyers AND homes above $1M than in the other cohorts. If you miss, you sit for a long time.

Design matters. at $400k, they want it “updated” and clean. At $1M, they want specific fixtures and appliances and trendy slabs of stone that match their Instagram feeds.

Mostly, it feels scarier because it’s bigger. We all compute risk management in our heads, without thinking about it, and sometimes our intuition gets it wrong.

Why Investors Should Buy Luxury Projects

Because prices are holding steady. Because as inflation eats the lower and middle class, the upper class still sits comfortably with money. Because less competition means better starting prices. Because old homes exist that you can buy for $476k that can be worth $1.2M if you do them right.

In a market where the bottom is paying buyers to close, the top is a much more rational bet for investors with capital and an appropriate understanding of the risks.

• Phoenix Waterfront Talk – 2026 Mid-Year Review

• Gluch Group – Is Phoenix a Buyer’s Market in 2026?

• Jared and Molly – What the Cromford Report Says

• Ravenscroft Group – May 2026 Update

• Ravenscroft Group – March 2026 Update

• Clearly Sold – Neighborhood Pricing 2026

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Summary of Returns

• Address: 18819 N 47th Ave, Glendale AZ 85308

• Purchase price: $275,000

• Rehab budget: $55,000–$75,000

• ARV (resale): $385,000–$425,000

• Estimated win: $8,000–$65,000

• Timeline: 4 months (30 days to complete rehab, 60 active to contract, 30 to close)

Context

I sourced this house from one of my local friendly neighborhood wholesalers. The owners passed away and the individuals who inherited it let it sit vacant. Now the roof and HVAC are shot, the other systems (electrical, plumbing) need some love, and the entire thing looks like it was renovated in 1975 and has been baking in 110 degree heat ever since. (I was told this story, and did not verify. SUPER second hand storyline, re-tell it at your own risk).

85308 - Why I love this area

Median sales price in this zip code is $485,000 and goes as high as $1.5M+. This is a nice spread - there’s upside, and money being spent in this zip. I like to be north of Bell road - the upside is growing, and demand stays consistent. These homes were largely built in the 80’s and 90’s, and the neighborhoods have held up well with owners remodeling their own homes over time. This is the perfect convergence - buyers like the area, these buyers have money, and the older inventory set yields flip opportunities.

Next Steps

I have a series of questions I need to answer in order to better inform my modeling. The first is condition - I have a range, and need to see it in order to button it up and get more specific. So I’m going out driving tomorrow. I was told by the wholesaler that “there are 4 or 5 people interested in this one” because it’s in a great area, and “don’t be mad if it sells quickly”.

I always check to see if I can keep it as a rental. As has been the trend in all of 2026, I can’t. This one is upside down, even with the baked in 18% discount when I’m all said and done.

Here’s my assumed budget so far. The institutional jargon here is ‘Pro Forma’ - modeled outcome based on underwriting assumptions.

ARV Sale Comps

4831 W TOPEKA Drive, Glendale, AZ 85308 - 400k, 1264 sf

19208 N 47TH Lane, Glendale, AZ 85308 - 407k, 1331 sf

4405 W TARO Drive, Glendale, AZ 85308 - 410k, 1136 sf

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