TRP025: Is That A Good Deal? My Property Evaluation System

February 11, 2016

In this podcast episode, I’m talking about how I use a systematic approach to evaluating houses to buy so that after I rehab and sell them, I make a nice predictable profit. You can use this system and make money too! I will introduce the A-B and B-C concept and walk you through the form-based system I use so you can develop your own systematic approach to making profits too!

Show Notes:

Property evaluation process

  • Have a systematic, repeatable approach. I use a form and it includes:
  • Property description info
  • Total, Heated, Possibility of additional living space sq. ft
  • Condition (poor, average, fair, good)
  • Formulate for calculating buy and sell price
  • Comps information/comments

Condition of key items:

  • Roof: age | check for permits | estimate cost to repair/replace
  • A/C Unit: age | check for permits | estimate cost to repair/replace
  • Sinkhole/foundation: public records info | permit dates
  • Kitchen: condition | deduct $xx from full rehab
  • Bathrooms: condition | deduct $xx from full rehab
  • Pool: condition | finish | repair cost

Note on added valuation

  • Is there any non-heated/unlivable square footage?
  • Can that be converted to livable square footage?
  • Check public records descriptions/diagrams, etc.

How to use MLS to drive AB and BC comps:

  • Use MLS – it’s the best and most accurate information
  • Drive 2 sets of comps: AB comps & BC comps
  • A = Seller | B = you the middleman | C = buyer
  • AB = you buying house at a discount | BC = you selling home at retail

AB Side

  • Sold, active, pending in immediate neighborhood
  • Houses of similar condition (e.., run down, needing repairs)
  • Up to 180 days history
  • Use houses within +/ – 10% square footage size of subject property
  • If 20% make adjustment
  • Use comps closest to subject property & no more than 1 mile away (urban areas)

BC side

  • BC side (retail numbers) – estimate what you can sell home for
  • Use similar process to determine after repair value (ARV)
  • Sold comps in last 60 – 90 days. If longer then why
  • If it takes 120, consider pricing and price cuts (e.g., price history)
  • Actives (competition) look to see what you are competing with

How to Adjust comps and by how much:

  • House with a pool vs. no pool
  • One car garage vs. two car garage
  • Lot size

Now that you have condition and comps information, use 70% of ARV less repairs rule to determine your maximum allowable offer (MAO)!