The Best Way To Run Comps: Exactly What To Offer?
When it comes to real estate investing, whether you’re flipping, rehabbing, or holding, your profits are determined on the price you buy the property. The old Real Estate Investor’s saying goes, “You win when you Buy”. Never get morning wood on what the property could potentially sell for. That thinking can seriously put a dent in your pockets. I see countless investors lose their heads because they don’t purchase a house at the right price. The reason is simple … they don’t run comps correctly.
Some of these guys usually are using the wrong platform or tool to accurately evaluate a TRUE value of a house. They use free websites like zillow, trulia, or the tax appraiser’s site. Don’t take this the wrong way, but those sites absolutely SUCK and will have you over-paying for Real Estate every single time. Trust me, I speak from personal experience. Once, a true seasoned investor ate my lunch because I was trying to sell him a wholesale deal that was more of a retail deal! But, I was just starting out and I’m not completely saying you CAN’T use these free sites. They are indeed good to get a basis of what “could be” and to double check your comps you run, but not to use to make a wholesale cash offer.
The best tool to use to run comps would be MLS. I know this is used exclusively for Realtors because they are the only ones who would have access in your market. That is exactly why you have to network and build a solid relationship with one. Develop a good friendship and they could give you an assistant login to their MLS access. It is imperative that you have access to MLS if you are to be a real estate investor.
How To Run Comps:
1. Square Footage – pull properties that are (+)(-) 200 sq. ft.
2. Radius – search within a .5 mile radius (depending on market, you may have to go out more if no results, but no more than 1 mile)
3. Recent Sold – 6 months max
4. Compare brick to brick and frame to frame
5. For AS-IS comps -Once you get search results, pick properties that sold for cash (these are most likely AS-IS sold REO’s and distressed properties)
6. For ARV comps – Pick properties that sold FHA, VA, or on loan financing. (these properties are more likely in better condition and can be used to determine a ARV if you’re rehabbing)
To figure out what to offer your seller, look at your AS-IS comps you’ve pulled and take the average dollar per sq. ft. ($psf) and multiply by the subject property’s square footage. This will give you the average/best case number of what your market would be willing to pay for this house if you were to wholesale it. Now take the lowest ($psf) on your comp sheet and multiply times the subject square footage and you will get the worst case scenario that YOU could sell for if you were to wholesale it on the market.
**As a rule of thumb, you should use the worst case number as your bottom line when considering what to offer. Your purchase price should be less than the lowest number you’ve calculated. **
Now you have a basis on your market, you can then determine what to offer after you go out and do a repair estimate. Your job now is to educate your seller on the market based on your AS-IS comps you pulled and the repairs needed on the property. You will always WIN when you buy, using this very meticulous strategy when running comps!
571-327-0741
Terry
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