Numbers & Deals · Ruben the Builder · 11K views

Real Estate Developer Exposes How To Underwrite A Deal (Steal This Strategy)

The underwriting formula behind every project: reverse-engineer from sale price, cap the land cost, and only break ground at 20%+ ROI.

Underwriting is the skill that separates developers from dreamers, and it’s a formula, not rocket science.

The formula

Sale price minus construction minus land equals gross profit. Work it backwards: start from what the finished product sells for today, subtract what it costs to build, and what’s left is the most you can pay for land while keeping your margin. Land at 20-25% of the final value or less. Minimum 20% ROI, 25% for safety.

Run your own numbers

The developer’s formula: sale price minus land, construction, and ~3% selling costs. Investment build assumes ~10% down + closing.

Target sale priceLand costConstruction + builder fee

$162,000

Est. profit

29%

ROI on cost

25%

Land % of sale

212%

Cash-on-cash

Rules of thumb from the BuildUp playbook: land at 20-25% of sale price or less, and a minimum 20% ROI (target 25%) before breaking ground. Red numbers mean the deal doesn’t pencil yet. Estimates only, not financial advice.

Try to kill the deal

Good underwriting is adversarial. Push your sale comp down, push your construction number up, add a contingency, and see if the deal still clears 20%. If it only works with optimistic numbers, it doesn’t work. There is always another lot; remember the ratio of 1 viable deal per 20-50 evaluated.

Where do construction numbers come from before I have a builder?+

Ask builders for $/sqft ranges on the product type you're targeting, and sanity-check against recent local builds. Your first ghost deals will be rough; by the tenth they'll be sharp.

What's the fastest red flag?+

Land priced above 25% of the finished value. Unless something unusual is true, the margin is already gone at purchase.

Fall in love with the numbers, not the real estate.

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