How We Comp And Evaluate A Property

The topic of 'how to run comps' is a very hot topic for investors. It is probably the most important skill set an investor can have when buying a property. It is the same thing as a stock portfolio manager being able to evaluate what a stock will be worth in the future. If the manager is correct, he will make money and if he is wrong, he will lose money. Determining the end value of a property is a lot easier than evaluating a stock in my opinion. I am also amazed when I see people buying properties and not having a true understanding of the end value. Sometimes investors are able to get away with a good resale number but they didn't actually know that the method they used to evaluate the deal was luck. Any investor at any experience level can benefit from knowing how an underwriter comps properties. It can only stand to help you make or save money.

Covering some basic ideas here should help investors gain some awareness of the value of their next projects resale price. The first thing I would recommend to anyone is to have access to your local MLS. The MLS provides incredible detail that you simply can't get from most free sites. It is so important to have access to your MLS that I literally could not run this business with out having it. The alternative is to possibly have a realtor that is extremely knowledgeable and can send you comps. This has its own positive and negative side to it so it is important to really know your realtor. The next few items are the things you should be able to quickly look at to determine a value. If you are inside of the city, there should be enough congestion to only have to look inside of 1/10th of a mile. You should not go to 2/10ths or 3/10ths when inside of the city. You want to see a nice balance of actives and solds. You want to see properties being picked up at an investor price and then resold within the year at the renovated price. If there is an imbalance in supply/demand, this is something to be cautious with. When you are in the suburbs you can go up to 2/10ths - 3/10ths of a mile and you would want to be very particular to school district and neighborhood. Style of property is also relevant along with days on market. These are all things to consider when evaluating your deal. The best way to get good at this is to practice it over and over until you are spotting resale prices before they hit the market and you are really close to the sold number. Track actives to see if you can identify the price they should sell at. Hopefully these tips can help you make money on your next deal.

Ian Walsh