THE ‘AL’ REPORT Volume 1, Number 8
Meeting Date: Sat 12/7/13
Welcome to THE ‘AL’ REPORT. My name is AL. Here’s my report.
Topic: How to Determine ARV Using Online Real Estate Sites
Presenter: Julie Clark
The eighth FortuneBuilders Mastery Seattle Investing Club meeting gathered at the Shoreline Conference Center. Coach Joe Bauer and Mastery student, Julie Clark, organized it. Thank you for all you do!
I counted 19 present with seven first time attendees! The power was ON this month so all the new people introduced themselves before the meeting. Group announcements included Julie’s Shoreline house closed successfully, 5 DOM, AL and Ken’s Shoreline house got an offer Nov 19 and should close mid December, (it did on Dec 13…one day before the 6 month hard money loan renewal fee would have been due. WHEW!) Dan’s Monroe house went pending!
The all important starting point in evaluating a potential deal, and thus determining what to offer for it, is finding the After Repair Value…the price a rehabbed house will sell for on the open market. This is often referred to as ‘the ARV’.
Determining a reliable ARV can be tricky even with some experience. It can require elements of both science and art. Julie agreed to share how she uses Redfin.com as one method to arrive at an ARV. NOTE: This method is NOT the “draw-a-circle-with-a-half-mile-radius-from-the-property” way that many people use to find ‘comps’. That method is termed ‘a big mistake’ according to Mastery Coach Erik Bee who trained us in Seattle just over a year ago.
Once you find a property to investigate, first go to www.Redfin.com. Go to the MAP section and input the zip code to search. Zoom into the neighborhood where your subject property is located. Begin looking for the ‘natural boundaries’ like busy roads, freeways, rivers, gullies, school districts, shopping centers, industrial areas, etc., whatever would separate one sub-market and neighborhood from another. This can be just one street away sometimes. This is why looking at sold comps half a mile out might not work if you are close to a natural boundary line for a specific neighborhood.
Redfin sometimes has yellow lines on their maps that define the main roads/boundaries, or check GoogleMaps for those boundaries if you are unsure. Google is also good for finding school districts, as is the school district website. Erik and Joe call this the ‘polygon method’ and it is taught in the FortuneBuilder’s Inner Circle Academy events at CT Homes in San Diego.
TIP 1. Some RE agents list homes with the sq feet including the garage, some do not. It is important to identify this when viewing your comps. You can break down a house by ‘Total SF’, upper floor, main floor, lower floor, garage. Julie does this. Using the Deal Analyzer (exclusively available on the Mastery website) she gets a price per SF with garage and without garage for a given house.
TIP 2. On Redfin.com, once you have located a good comp, scroll 3 / 4 down the page to Nearby For Sale or Nearby Recent Sold. You can do a fast search within a half mile but be sure NOT to cross over any boundaries like main streets, etc.
Also, make sure you are only comparing houses with similar STYLE of construction. This should not be the only way you identify comps, but just a quick and easy look. Play around with it!
Tip 3. Julie then seeks out AT LEAST TWO (2) real estate agents in the local sub-market that she has just identified. The key here is to find agents who KNOW the neighborhood, not just the larger area or the county. These agents often are able to tell you details/nuances that the less informed group of agents would not have. This is a crucial point. Most experienced agents are very good at what they do. We are seeking those experienced agents who know our specific street, and who know what the buyers who buy on that street look for. At this point you try to get an idea of value from these experienced agents who know the specific street/neighborhood. This may be the ‘art’ aspect of the process.
Tip 4. CAUTION: An ARV may calculate to a certain price ‘on paper’ and it might seem to make sense at first. But ONLY a knowledgeable agent ON THE GROUND, experienced in that SUB-market, can CONFIRM what the value really should be due to any of several reasons you might not think of or by just doing the math. This is especially important if there are NOT many solid comps to guide you.
Tip 5. Also, Redfin shows ‘solds’ that were never listed, plus nearby ‘solds’ or ‘actives’ where you can look for deals by finding houses that are an average price and maybe find one nearby that is in need of work…and at a much lower cost. It might be an opportunity.
Someone asked about a CPA and Julie offered a CPA in Tacoma, John Hodder of Hodder and Land. She says he knows real estate very well and many of his clients own real estate investments.
Julie then asked Mastery Coach, Dan Wick, who is a commercial appraiser, to elaborate further using the Residential Appraisal Summary Report Julie had brought. If you want to learn more about how to read those reports, you can reach out to Dan or Julie with questions as there is too much detail to review here.
The house data can be verified through the county records. King County’s is Parcel Viewer (http://www.kingcounty.gov/operations/GIS/PropResearch/ParcelViewer.aspx). For Pierce County: http://epip.co.pierce.wa.us/cfapps/atr/epip/search.cfm. Snohomish County has a ‘view structural data’ tab to see whether an existing addition (ad-on) was done with permits. See: https://www.snoco.org/proptax/(v2plb5a23rqwku4544hyczfq)/Search.aspx.
One person at the meeting shared that he uses the Coldwell Banker-Bain site to do the same kind of analyses. Another person commented about septic tanks, “…get it pumped and inspected. If there are problems, they are relatively easy to fix.” Also, in one project he encountered an ‘unexpected problem’ after he purchased the property. He explained, “From the outside, the property looked pretty good. However, [the previous occupants] never turned the heat on, cooked with a lot of grease, and were raising chickens in the crawl space. They used the chicken blood to cook their food. There was so much grease in the kitchen, all cabinets needed to be replaced. All window areas had mold due to no heat. Very messy. We lost 9K on this project.” LESSON: When making offers, be certain to inspect and protect yourself with contingencies. Give yourself an ‘out’ whenever possible. Buyer Beware.
Please let Julie or Joe know other topics you may want to cover in future meetings. This is YOUR meeting, we all benefit from YOUR involvement.
Thank you for helping our group to grow and move forward in our active investing businesses. Meetings are now MONTHLY, the second Saturday of the month, 4pm to 7pm, unless otherwise announced. Watch for Joe’s emails….and view news on the exclusive Seattle Investors Club Facebook page. If you need an invitation to join that site, ask Joe. If you don’t know how to reach Joe, ask me at [email protected]
Looking forward to seeing you there!
Joe says, “GO HAWKS!”
Disclaimer: Though every effort is made to report accurately; errors may creep in, likely due to the writer’s lack of brain nutrition. Feel free to let me know if you see any goofs. Thank you. AF [email protected]