New investor First time comping San Diego Chula Vista

[Alfred Reserva]

This is my first time trying to learn how to comp correctly. I was searching through Redfin and came across this address 16 E Olympia Ct, Chula Vista, CA 91911 (3-2 1348 square feet in listing but public facts say it is 1072) says first time on the market for $595K (posted 8 days ago) although it also shows sales history in 2001 so there are many discrepancies with this listing but says motivated seller and has not been renovated.

Comp 1- 53 E Paisley St, Chula Vista, CA 91911 a few streets over. Much larger house sold for $696K 1 month ago.

I found a similar address 14 E Oneida Ct, Chula Vista, CA 91911 that sold for $800K the next block over which sold 4 months ago although there are no pictures of the sold house. 2 car garage instead of 1.

Another similar comp on 25 Plymouth Ct, Chula Vista, CA 91911 which sold for $700K 2 months ago although it is across a major st so that may effect the comparability. Also has a 2 car garage instead of 1.

Should I use the lower estimate of $696K ARV or lower it some more? Maybe use $650K?

If I use the Bigger Pockets calculator attached and plug in $45 per square foot Reno ($65K) and $30K profit I get an offer price of $494K max.

As I am trying to learn, am I going down the right path of comping? This one didn't seem to have very many good comps recently. I don't have any funding yet and am planning to apply for hard money lending this week to keep the ball rolling on this journey. Also since I am a GC I am pretty sure my team can do the Reno for less than $65K but trying to stay conservative. Any feedback highly appreciated.

[Mike Klarman]

Keep this is mind, banks these days, unless you have 30+ experience, are only going to fund you at 70% ARV cap.

So add up purchase and rehab and divide by arv and times that number by 100. That's the project cost in terms of % of ARV, anything over 70% and the bank will ask you to come out of pocket.

So if you have a property you like that has an ARV of 300k then the max loan amount for you on this deal is 210k and when you add the purchase (155k) and the rehab (75k) you get 230k. If you still wanna do the project you can, but that extra 20k is on you so your skin in the game goes up.

Bank's are doing this on purpose.  They're saying "Hey, if you can barely do a deal, well, you can't do deals."  They want capital healthy investors that can show 100k - 150K in an account even though their show requirement is only 70k.  And those investors really do not care if their float on a deal is 50k or 70k.  To those guys money is just a pawn in the game.  They deploy it to get deals done knowing it comes back either in short term gains or as passive cashflow.

For that new Investor just getting in, unless they're flush with cash, they have enough money for a deal and if you have one bullet right now as an investor it's tough to get things done because you have the costs of the deal plus you have holding costs, and you have first in money for a contractor.  Most contractors you talk to will want 20% - 25% up front to get started.  So if your rehab is 75k then you need another 17k to get the job started.

If you have the capital to deploy then you can work in this market, but if you're scarping together and pinching pennies it's going to be hard for you.