The Real Estate Preacher Podcast

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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)!