On today’s episode, we are reviewing how to easily find comparables for your home or investment property. Understanding how to pull comps is a valuable skill as a real estate investor. You have to understand your market to be able to purchase a great investment property.
Comparables or “comps”: Comps are sales records of recently sold homes. Appraisers and real estate agents use them to get the most accurate estimate possible of a home’s value.
How to Find Comps
Find homes that are just sold or recently sold on Zillow or Realtor.com:
- First look for the last 180 days – if you can find 3-4 similar homes that is great. If there aren’t great comps then change it to 360 days
- You want to find homes in the same neighborhood and school district
- Similar homes means similar style of home (compare a ranch home with another ranch home)
- You also may want to consider driving by the properties – the photos and info online is marketing material and may not highlight the true offerings of a home. For example, a home on a cul-de-sac is more valuable than a similar home on a busy street or right next to a commercial building. Value goes up when there is more walkability near the home – are there restaurants, bike paths, parks nearby?
Once you find 3-4 homes, create a table to easily compare the features:
- Top 5 features I look at are – Square footage, # of bedrooms, # of bathrooms, garage, basement
- There are many other features that can affect price but those are the most important factors. Here are a few others – central air, outdoor living, fireplace, master bathroom, general condition of the home
- You also want to calculate price per square foot of each home
- Sale price of home/square feet = price per square foot (ex: $100,000 / 1,200 sq ft = $83.33/sq ft
Calculate the value of your home with the information you have gathered:
- Kitchens and bathrooms add the most value to a home
- For example: Let’s say our house is exactly like a recent home that sold for $100/square foot, however, your home has a newly renovated kitchen and a master bathroom. You will increase your price per square footage to account for those improvements. Depending on your locating this increase will vary, but I would say it could go up to about $110-$115/sq ft.
3 Examples Using Comparables
- Buying/Selling a house: If you are selling your home, this will help you determine a reasonable price point for your home. If you are buying, you can estimate if the price they are asking is accurate, overpriced or undervalued
- Buying a fixer upper: Looking at comps is very important because you want to understand the after renovation value or ARV. You will do the math to see what price you need to buy it at. So let’s say you want to make $25K, you estimate the renovations are $25K and they are currently asking $100K for the home. If the ARV comps (once the house is fixed up) is $150, then you are golden. If it is $140K, then you know you have to offer at $90K to hit your monetary goal of $25K profit.
- Rental properties: You don’t want to pay more than the average home in the area and you will most likely need to do the same calculations as the flip if you are doing renovations. Even if you like the numbers with cashflow, I believe it is important to have an exit strategy, which means you want to understand what you can sell it for if you have to. You don’t want to put too much into it and then lose money on the sale. We also compare rents to determine what renters would be willing to pay for our property.
- “I got scammed by a sweet old lady on a motorized card! I didn’t even see it comin’!” No, seriously though, I got scammed out of $450. Last fall I got a call from a “business” saying they were selling ad spaces for the golf courses in my area. They seemed legit and gave me a whole sales pitch; I even called the number back and they answered as the business. They emailed me back and forth (with an official email address – not gmail) for 2 months working on the design of my advertisement and then shut everything down!! The company was called Golf Club Publishing and I am so embarrassed that I fell for it! Just go ahead and add me into the category of Grandmas who paid scammers to get their grandkids out of Canadian jail.
- We finished the deck at the cottage this weekend! We added more usable space where it was constantly muddy and it was totally worth it
- Closing on the Balkan rental property this week – FINALLY!
- UNDER CONTRACT with Drummond & we received the inspection repairs list – final step other than closing is to get the appraisal back
Tips of the Week…
Chris: It’s all about the wood! Be aware of the appropriate wood to use when building a deck. In Denver (where it is dryer) we used cedar to build decks, but in climates with more moisture in the air, like Ohio, you need to use pressure treated lumber. The width varies with each type of wood so be aware of the width when determining the height of your deck because you don’t want to stub your toe! Also, when screwing in the top planks, use two nails for even spacing between each board to allow for draining and expanding and contraction when the wood becomes wet.
Lindsey: It’s gardening season and I have an amazing tool for you! The Hori Hori gardening knife is is the Swiss Army knife of gardening tools! The sharp point allows you to easily dig out weeds and also cut plants and overgrown grass.
Thanks for tuning in! If you like the podcast please subscribe, rate, and review us on iTunes!