Help to identify a fair price

[Erika Martinez]

Hello,

I have been trying to find a decent price for an investment property in the Denver real estate market, but everything is CRAZY!!. However, I just saw a property that potentially can be a good fit for me, it has a 10,000 lot sq ft. full basement, and a little detached room. My concerns are that there might be some structural damage only in the sunroom. The county assessor is assessing the property for 100k less, can I still lowball the owner? The Denve market is bananas right now! How I can determine if I am way overpaying for this property?? Any advice?  thanks

[Jonathan Bombaci]

@Erika Martinez so we get this question all the time in the Boston market, which is also very competitive right now. To other posters point the agents, appraisers, and the bank will establish the property value based on comparative properties (comps). To establish the value to you, your situation, and your strategy just run your numbers. The BP rental calculator is a great place to start for this. 

Our clients are having success when we’re able to find a favorable gaps between the “market value” and the value the property has to them from a cashflow or Flip potential. 

For example a 2 family might comp out $500k, a 3 family at $700k, and a 2 family with 3 apartments (1 auxiliary dwelling unit or ADU) might comp at $550k. If someone is looking to househack and live at a discount long term the 2 family with the ADU has the same gross potential income as the 3 family assuming 1 unit is owner occupied. At $150k less which one do you think pencils in better for a househacking strategy?

The same can happen with a flip or BRRRR strategy assuming the investor has a competitive advantage and can do, or get certain jobs done, quicker and/or at a discount compared to the rest of the market. For example we have one flipper that likes 3 bed 1 bath cape style houses where the roof needs to be replaced. The old roof makes it ineligible for FHA financing and the 1 bath makes it inferior in the eyes of most home buyer. He pops the roof, adds dormers, and another bath upstairs, and increases the useable space in the bedrooms. Then he sells it as a FHA ready 3 bed 2 bath where the comps are quite a bit higher. We have others investors that are licensed electricians, or plumbers, or excavators, so they look for properties where they can leverage their expertise to beat the competition.

From my experience if you just rely on the market to bring you undervalued properties then you’re going to be spending a ton on marketing or you’ll be dependent on others to find and close deals. If you develop a niche or competitive advantage then you have a repeatable strategy that only requires your ability to buy something at “market value”.

Obviously this is just my 2 cents and full disclosure I don’t know the Denver market at all. But I know greater Boston and I’m assuming they’re good comps (see what I did there). From a background standpoint I do run a team of 16 investor focused agents  in MA and we focus on greater Boston and surrounding markets like Lowell, Haverhill, Worcester, Waltham, and fitchburg. Plus we have an in-house PM company and we do quite a bit of investing ourselves, so I have been around the block a few times.

Best,

Jon