The Science of Comping Part 2: Avoid These 3 Rookie Comping Mistakes | Wholesaling Real Estate
Welcome to Part 2 of The Science of Comping! In this post we are going to cover the 2 main areas investors leave money on the table when it comes to comping real estate and how to avoid it, regardless of experience. I am confident that if you implement the lessons from this series you will increase your profits and close more deals as a result! So, that being said, let's dive in!
The 3 Main Areas Rookies Leave Money On The Table When Comping Real Estate
There are many reasons why new and seasoned investors leave money on the table when comping real estate, however, there are 3 main areas that remain the most costly when done incorrectly. Now, I am not saying that if you don't get these 3 correct you can't do deals...I am also not saying that these need to be perfect out of the gate otherwise you won't have success wholesaling real estate.
However, what I am saying is, that having knowledge about how important these 3 areas, will allow you to add several thousand dollars, if not more, to every single transaction without any additional marketing spend.
Ok, ready for the 3 areas?
3. Local Market Knowledge
Now, I am going to break down each of these 3 and the effect they can have on your overall profits.
What is the ARV or After Repaired Value And How Does This AffectProfits When Wholesaling Real Estate?
The After Repaired Value, also known as A.R.V. is the value of your property once it is fully renovated. Most people do not know how to correctly calculate this and as a result, could be leaving $10,000 or more on the table from every transaction. Why is that a big deal? Well, let's just say you did 12 transactions in a year, at $10,000 per transaction, that comes to a total of $120,000! There are many different ways to calculate this, but since I am a licensed Realtor, I prefer the Realtor / Appraiser method and I detail this in part one of this series: The Science of Comping: How Successful Investors Value Properties
I won't spend a lot of time here diving into how to calculate the A.R.V. since I covered that in detail in part one of this blog series above, but in short, you want to find 3 fully renovated properties similar to the property you are trying to comp, take the average of those 3 and that will become your properties After Repaired Value.
How Do Successful Real Estate Investors Calculate Repairs
The second area we are going to cover is repairs. In my opinion, this is the hardest area for new investors to get right...heck even seasoned wholesaler pros struggle with this from time to time. This is why I recommend for every wholesaler renovate at least a handful of properties in their investing career, so they can have real hands-on experience around what their end buyers face with every single property. Renovating properties yourself will also give you a newfound respect for what your buyers do every single day.
Now, before you say "BUT CHRIS, I have never renovated a property before! Are you saying I need to do that before I will be able to come up with repair numbers for my wholesale properties!?"
No, I am not saying that at all. What I am saying is that renovating a handful of properties yourself will give you real-world hands-on experience and respect from the buyers you are going to be selling to. Now, I am going to show you the 3 ways to estimate repairs like a pro, even if you have never swung a hammer or are a complete newbie!
There are 2 ways to calculate repairs:
1.) The price per sq ft method.
2.) The per repair method (using sites like HomeWyse.com)
Just like any method, there is the easy way and the hard way...I prefer the easy way, so we are going to run with that first... that sound good?
I have found that the easiest way to calculate repairs is by method #1, the price per sq ft method. With this method, you start by asking local contractors who work with investors specifically (these can be found in local Facebook groups) what dollar per sq ft are they seeing for complete renovation costs in your local market.
Let them know that you an investor that's new to the area and you are looking to get a better understanding of what flippers are paying right now to renovate properties. You might have to make several calls to find this out, but don't get discouraged, keep making contacts and once you find the right person they will be able to get you this information.
You can also ask rehabbers in local Facebook groups as well. Get 3 quotes and take an average sold price per sq ft of the 3. The material of the exterior property structure will make a difference in repair numbers too, for example, the repair price per square foot to renovate a historic wood frame bungalow will be drastically different than a block or brick home.
Price Per Repair Method
This can be done by going to a site like HomeWyse.com, entering the zip code where your property is located and the type of repair you are looking to value. To start, you would need to take a look at all of the pictures you have of the property or the information the seller-provided (this is not always 100% accurate as they don't always reveal everything), search the repair on HomeWyse.com and add up the total. Then, you will have your repair number for your property. I recommend this method as a way to better understand the costs of repairs but not necessarily to quickly calculate repairs for a property. For speed and accuracy, I would recommend the price per sq ft method above.
Area #3 Local Market Knowledge
Knowledge of your local area is also important when valuing real estate. For example, knowing where all of the historic neighborhoods are, the most popular zip codes, and new areas under development are all key to maximizing your profits on every single property that you close. The best way to find out all of this information is a free little tool called Google :-). Just type in "Historic Neighborhoods in _______(Your City) or "Best areas to flip in ____________(Your City). Anything you are searching for in your area, for the most part, can be found online. I also recommend calling the county for more local information as they will be a huge resource for any questions about your local area. The more you know about your local area, the better you will be able to price your properties to ensure they sell for top dollar!
In Summary, View Mastering Comping As a Journey. Focus Solely On Becoming Better Than You Were Yesterday.
Imagine if you could improve by 1% every single day. At the end of the year, you will have improved by 365%! Focus on small improvements each day and you will soon become a master at The Science of Comping!
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
P.S.S As a side note if you decide to move forward with the offer during the free web class you'll even get my no b.s. calculator that will run comps on autopilot. Just simply enter 3 properties and get the value! Seriously...register for the web class it will blow your mind: https://go.flipteam.io/blogids
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