There are so many different ways to find comparable properties when you’re researching the value of a property. But I wanted to share a quick tip I will use when I feel stuck.
When I look into how much to offer on a house, I start with the obvious: properties recently sold to investors. If there aren’t many of them, I might look at other things, but if after searching high and low I’m still not sure, I will do this:
First, I’ll go onto Craigslist and search to find properties that are for rent in the same neighborhood as my lead. The fact that you can now search by map makes this even sweeter. It’s so easy! Pick 2-5 that are similar to yours, and note the address.
Then, go to the county assessor (or appraiser) website and research those properties. On my county assessor’s site I can see what the owner paid for it and when. It may not be terribly recent, but if it was in the last couple years, it gives me a ballpark idea of what active investors who currently own in that area will pay for a similar house. It really helps a lot when you feel you’re going in blind.
(And having that same list can be the golden ticket if you get the property under contract!)
I got word yesterday that a buyer is ready to move forward with a property I have under contract. Always great news!! But if I’d followed the typical wholesaler formula that is plastered all over the internet, I probably wouldn’t have this deal.
The typical formula a savvy beginning investor would find out there for wholesaling looks like this:
ARV (After Repair Value) x .60-.70 – Repairs – Your Assignment Fee = MAO (Max Allowable Offer)
Take the neighborhood below, for a typical 3/2/2, following the typical formula:
$110k x .70 – $20k – $5k = $52k MAO
But look closely at the properties that have sold in this neighborhood:
First notice that I didn’t cross a major street for comps. I also stuck to recent comps, no older than a year, putting more emphasis on the most recent ones. So the average ARV is about $110k, and the average investor purchase price is in the $70’s.
Most of these sold comps had pictures or good descriptions of the condition. The ARVs usually had replacement windows, but only basic upgrades; all had new paint and were fresh and clean. Most of the investor comps were in decent condition, only outdated and possibly needing a couple major repairs like a new roof or heating and air units.
Based on this information, an end buyer could pay up to $75-77k for the house. That’s over $20k MORE than my formula told me. So in this case, you could get it under contract for $70k and still flip it for $5k. (Get it under contract for less and make more! But $5k is a good average wholesaler’s fee.)
I’ve been outbid 3 times in the last two weeks and that’s frustrating! But it reminds me to pay closer attention to the comps and hold loosely to my formula – the market determines what we can pay and nothing else.