What to do when you have no good comps for your deal!?
Have you ever had this happen to you?
Joe: What are the “nuts and bolts” of no good comps?
Julie: Having no good comps is a common problem. It’s a very very…very important topic. Understanding what you’re getting in to and being able to decide if you should even do that deal is critical.
No good comps can be: No homes sold in the last 6 months that have comparable structure, boundaries of neighborhood, home age, home size, etc.
BUT, there are ways to push through if you would like to continue and complete the deal.
Let’s get to it!
“Personally, you should never be in an emotional position when buying real estate” – Julie Clark
Don’t ever trust anyone. DO YOUR OWN HOMEWORK.
Julie – on the different times she has run across deals that had comps…that weren’t comps at all.
huge mistakes in Real Estate investing.
- Overestimating the ARV
- Overestimate value on the purchase
- Underestimate their rehab costs
- Ignoring variables.
– Don’t buy deals you don’t have comps for!!
One comp does not make a deal! Ideally you want 3 comps.
-The comping checklist-
- Find out style of construction for subject property. Rambler, 1 story, split level, land, etc.?
- Criteria for finding comps: Stay within a 1/2 mile radius of the property (Using google maps to calc distance), Stay within thoroughfares surrounding property, Stay in the same school districts (Use Zillow for school research).
- The age of the sale. Start with 3 months back slowly pushing back to 6 months if you have to.
- Comparing size of property +/-20% for searching comps.
–What happens if there are no comps 6 months back? –
Is it better to break the 6-month rule?
Is it better to break the thoroughfare rule?
Jedi Joe – 😉 Go back further in time.
Reason: When you change locations your changing better and worse streets, amenities, school zone, etc. the risk is larger.
- As you’re traveling back in time in your Delorean, to older listing’s. Keep in mind that you need to add or subtract any market appreciation, or depreciation. You can find this info in Zillow linked above.
I.e. If your market increased 15% you add 15% to the ARV, if you want to be more conservative add 5-7% more. This goes for lot size as well. Sub-dividable, and dividable is a factor that is an emotional decision for buyers so understand the plot of the land. Do your research, ask questions, what’s selling?
We want to hear the deep nuggets Julie!
What if my comp is the same for everything except total square footage Julie!?
-Use +/- 20% for your first round of comps only, this isn’t for the last analysis of the deal! –
Is it appropriate to take the difference and multiply by price per SQFT?
No, it’s a major mistake.
What SIC does is for the difference in SQFT:
above ground space, we use $125/ft. multiplied by the SQFT. Difference.
below ground space the #’s are $50 per SQFT.
Disclaimer – The concept is what’s important here. You are on your own if you use this.
You can have different values of a home based on the amount of SQFT each has, and where it is. Is it on the main floor, is it on the basement? This is going to change the value of the properties your looking at.
What happens if you get houses where you can find everything, but all the comps are different construction style?
-Ramblers are the most sought-after homes in the market-
The math is the same thing as calculating the difference in SQFT.
Take the $125 and multiply by the SQFT difference if the comparable is for example a split level with above ground SQFT.
if it’s basement SQFT multiply by $50.
Ninja trick #2 – Pending comps.
Call up your broker, congratulate them on their listing, and ask them if the pending property sold over or under the list price? This will give you classified intel that your sellers will not have. It also gives you a good idea if you have room to play with, on the subject property price.
The last ninja trick –
Once you’ve done the comps, bought the property, rehabbed the property, re-listed and got a ton of offers and blew it out of the water! You should see the trend that is happening in that neighborhood. You need to be hammering the neighborhood to get yourself the next deal in the neighborhood!! Knock doors, send out flyers, do summer-saults, and get the next deal in that neighborhood!
Remember for homes that have no comps, do not purchase emotionally!
- Get that comp checklist at [email protected]
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– Thank you for tuning in! –