Running comps, am I way off or is the wholesaler? Help! D:

[P.J. Bremner]

I saw a deal recently from a wholesaler on BP and I wanted to run something by some of the more experienced investors. I'm well aware that most wholesalers tend to "dress up" their ARV numbers and "dress down" their rehab costs. In this case, I felt the rehab costs were very reasonable, if not spot on. The CMA he provided was really disturbing though... (or am I just ignorant? Help!)

Here is the search criteria he used to pull his ARV comps value:

- 12 months of sales

- Living area of +1,400 sqft of subject property or below (Subject is 1,200)

- 1.21 Mile radius from subject property

- Price range of $250,000 or above

WOW, I have a real problem with 3 of the 4 bullet points here.  Here is what I was taught a good comp should be:

- 6 months of sales

-  +/-200 sqft of subject property (1,000 - 1,400 in this case)

- 0.5 miles from the subject property

- same ba/br or close to it and adjust

- do not cross major boundaries such as a different city, freeway, major road, etc. because local markets vary significantly

I'm not happy with this person using 12 months of sales data, but okay I get it. He tried to fudge a little. It's the other two that #%$@ing piss me off. That radius is VERY SPECIFIC, almost like the seller was trying to include VERY SPECIFIC COMPS to help his ARV values. Also, who in their right mind would EVER include a sale price range limit when finding comps?! If you have really high or really low numbers, you look at the pictures and geography and justify why. You see one for 30% less? Okay, it's probably a dump and NOT A COMPARABLE. You see one for 20% more than all the others? That doesn't mean you use THAT listing as your comp and boost up the "ROI" you are offering... Maybe the house has a huge lot, golden toilets, etc.

Can someone weigh in on this please?  I would love to hear what you use for running your comps and if you encounter this crap often as well. 

[P.J. Bremner]

@Mindy Jensen

I see a contradiction to your comment about trusting my gut one way, but not the other.  When I accept a tenant, I am entering into a business agreement with them.  Aren't I vetting them much the same as I would vet any business partner?  They are my tenants, but at the end of the day they are paying ALL of my business expenses and profits.  That sounds like a partnership to me.

A little sidetrack from the topic of this post, but I want to make sure my position isn't misunderstood.  I vet all tenants, even if it may not be the traditional vetting process.  My business model allows me to approach tenant vetting very differently than a traditional rental.  Who are generally the problem tenants?  Professional squatters, people who know landlord laws like the back of their hand or working mothers and fathers who have to decide between paying for food for the kids or paying rent, etc.  My student tenants have not been "jaded" by life yet and learn how to cheat a landlord out of rent.  They study their subjects, not the landlord/tenant laws.  They have to feed themselves only and generally get their money from student loans (we both know how reliable the government is when it comes to throwing out trillions in student loans) parents or part-time work.  Plus, all of my tenants rent month to month so that if there is any issues, I simply do not renew their lease the following month and they are out.

Would you believe that i've been running my business for over 4 years without running a single background check, credit check, income verification or landlord reference?  You know how many formal evictions I have had to file?  0.  When I show the house, when I'm texting the tenants to setup the showings, when I am making my decision behind which person to choose to rent to, I am doing my vetting process.  I can read people reasonably well and I can spot a bullsh!t story from a mile away.  So yes, my "gut vetting" has served my business well.  Please do not confuse my business practices with traditional business practices.  We both know a round peg doesn't fit in a square hole : )

Btw, I hope this conversation isn't construed as being contentious!  I just wanted to get my side of the story out there and offer an alternative to discuss.  It's the only way we can learn from one another!