Comping property, also know as getting comparable for your subject property, is a keystone to success in real estate investing.
Not only does it set the table for what you will be dis-positioning your property for but it sets the table for how you will be completing your project.
What is meant by this is, that you will be able to make determinations of what finishes you need and what quality is required when you finish out your comps.
The task is quite simple all you have to do is select similar (comparable, duh) homes to yours and analyze them against yours, very easy.
Only problem is most people mess up SO badly on this!
Why do so many people mess up on Comps? (#4 is VERY important)
- Don’t understand parameters
- Rely on a Realtor for comps
- No comps available…
Number 1- The Parameters
The parameters of what a comp truly is are very important and must be adhered to for accuracy. Here are the basics in a nutshell
In comparison to your subject, the properties must:
- Located in same city (or municipality)
- Located in the same zip code
- Not separated by major thoroughfares
- Main streets
- County road
- Like kind communities
- Built with similar quality
- Close in age and design
- HOA or Non HOA
- Within 10% in size (Better within 5%!)
- Similar bedroom and bathroom counts
- Lots size
- Sold within the last 3 months
- 6 months on the high side
- Like kind features
- Garage or no garage
- Pool or no pool
- Gate community non gated community
- View or no view
- Similar neighborhood make up
- Pride of Ownership
- Available parking (Metropolitan issue)
Number 2- Relying on your Realtor
Is it easier to spend your money or someone else’s?
I hope you would say it is easier to spend yours but that is not always the case. What I am getting to here is that Realtors are there to make money and get their clients into properties.
This is NOT sinister, but a fact of how the business works. A realtor makes money when a deal is created and completed, plain and simple. If the deal doesn’t make 100% sense they may still push it, and see if you can make it come together on your end.
This is why every investor must learn how to comp accurately!
Number 3- No Comps Available
This can happen on occasion and can be quite frustrating to the new investor or even the seasoned investor. So what do you do when there are NO comps available for your property? Here are some steps that I take when I encounter this issue;
- Evaluate like kind homes with in proximity to home
- Might be outside of zip code or city, but are very similar and have same emotional value to buyers
- Look at comps over 6 months (Beware of market shifts!)
- Call top 5 Real estate agents in the area and get an opinion
- Evaluate change in value over square footage between houses larger than yours and smaller than yours and see where you land in the value spectrum
Number 4- Emotions!
Emotion is the enemy of success!
I see it all the time with investors in projects. They are looking at a house that might be in a “cool” part of town, or maybe they have been slow for a little while so they are “trying to keep their crew moving.”
They look at a deal that does not make 100% sense to them but with the above idea in mind they pick it up anyways. 3-6 months later they are sitting there with little to no profit, sometimes a loss, and wondering why they ever took the deal on.
This is a major mistake and will only take away more opportunities from the investor by dedicating their time to a little to no profit property. Here are the rules I try to maintain to avoid this;
- Be honest about what it will sell for when the project is done and what you can make
- Don’t make decisions based on short-term situations
- Area is cool
- I haven’t had any projects recently
- Keep my crew going
- Don’t let other investors projects influence you to think you can perform the same way
- Dave buys for more than I do, so I should be able too
- Karen did a deal in this area close to the same price
- Everyone is buying projects for more than I do
- Don’t try to make a project meet you ARV by forcing through a series of “what ifs.” If it is not there, it is not there
In the End
No matter what you do to a house, the market will tell you what it is worth. You can not change what someone will pay for your house simply based on hope and half canned thoughts on value.
Remember, when it is all said and done you are truly relying on the market to make you money on your project, and if you don’t have a product that reaches the market price you need, then you are stuck and all you can do is lower the price to what the market is willing to pay.
If you are looking for a more in depth lesson on comping check out the FREE 7 Day trial to the Better Tomorrow Group Mentorship program by CLICKING HERE
Best of luck out there and just be honest with yourself going into a deal, and you can make it all come together!
Andrew T Greer
CEO Better Tomorrow Group
Andrew is an active investor, speaker, Realtor, serial entrepreneur, and educator in all that is Residential Real Estate. If you would like a FREE copy of his book follow this LINK. If you would like to follow him on Social media you can find him onInstagram@beastmoderealestate and @bettertomorrowgroup, onTwitter/Periscope@TheBTGRoup and Facebookathttps://www.facebook.com/bettertomorrowgroup/ Also on Snapchat TOO @BeastModeRE