The Science of Comping Part 3: 5 Top Factors That Affect Value When Comping Real Estate|Wholesaling Real Estate
Welcome to Part 3 of The Science of Comping! In this post, we are going to cover the 5 Factors That Affect Value When Comping Real Estate.
5 Significant Drivers of Value|Wholesaling Real Estate
There are many factors that affect the after repaired value of a property, but there are 5 main drivers that have the biggest impact. Let's dive in!
1. Busy Roads & Highways
Outside of catastrophic damage (fire, Sinkhole, structural damage), nothing can affect the value of a property more than an undesirable location. Usually, houses on busy streets are not as desirable as properties tucked away in quiet neighborhoods and private subdivisions. Overall a busy road can affect the value by as much as 10-20% or more! In short, don't compare a property on a busy road to another in a private subdivision; the properties are like apples and oranges.
2. Popular School Districts
Another factor that affects value when comping real estate is the specific school district the property is located in. Popular school districts in your area can be found by looking on Zillow or searching on google, but once you know what they are, you'll notice that properties sell for a premium in these areas. Parents want to place their kids in the best schools possible or avoid a potentially bad school, so school districts can be a significant driver of demand and as a result, price.
3. Major Dividing Lines
Interstates can also be a factor that affects value when comping real estate. What are Major Dividing Lines? Interstates, bodies of water, heavily trafficked streets, etc. There are situations where a property could be worth $350,000 on one side of the interstate but the other side $450K+. When comping properties, try only to compare properties on the same side of the major dividing line in a given area.
4. Historic Neighborhoods
Historic Neighborhoods can be a huge driver of value. Often, these areas can be recognized by their bungalow-style houses, which are usually wood frame builds, and these structures are typically 50 years older or more. I have seen Historic areas where homes will sell for $550K and houses in the next neighborhood over, not even a half-mile away, sell for $150K. Such a price gap might seem hard to believe for properties so close to each other, but these properties are very desirable. Heck, I have even seen a historic bungalow-style home next to a non-historic wood frame property, and the bungalow style sold for almost $200K more than the home right next door! When it comes to real estate, demand will always drive price.
5. Areas In Transition
There's a word called gentrification that can be a factor for increased value in real estate and while this sounds like a complicated term it really just means an area "shift in demographic". These areas that are "gentrifying" are also called up-and-coming areas. An example of this is when an area goes from a high-crime area, to an area where builders are developing new homes. Next, a Starbucks comes to the area, then maybe even a Chick-Fil-a. As the area starts to develop further, crime starts to drop, and then the area becomes more desirable. Houses that once went for $100K in this area, now maybe are selling for $450K. Tremendous profits can be made from knowing your local area, being able to identify areas in transition and
In Summary, There Are Many Factors That Affect Value When Comping Real Estate, But Knowledge Of Your Local Area Is The Key To Unlocking True Success!
To summarize, paying attention to what is happening in the local area is key to success, and you always want to make sure you are comparing apples to apples. Not apples to bananas or apples to oranges. All fruit aside, you want to compare the same types of properties in the same areas on the same side of the major dividing lines in the same school districts and educate yourself on the historic neighborhoods in your market. If any of this seems overwhelming to you, remember...so was riding a bike when you were a kid, but you learned to ride, right? Like anything else, the more you practice comping, the easier it gets!
To Your Success,
- Chris Logan
P.S. By the way, since you now know how to value real estate the next thing you will need is properties to comp! I'd like to invite you to a FREE online web class that I am hosting this week called Instant Deal Secrets, where I'll show you how to find the BEST deals in your local area guaranteed so you can turn this knowledge into action and action into income! Register here => FREE Webclass
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