A sticking point for many new investors trying to wholesale real estate is having to figure out after repair value (ARV). With out getting a good sense for what the house is worth in good condition, we will not know what to offer in order for us to make money. This is arguably the KEY to being a successful wholesaler. So how do you figure the value of a property?
The first place you should go is your local MLS to get the comparable sales. This will be by FAR the most accurate way to assess the value of a property. If you do not have direct access to the MLS, you’ll have to talk to your Realtor. If you don’t have a Realtor relationship yet, this will be a good way to start one. Just make sure you don’t waste their time.
Other ways of establishing a houses value is to look at your local government’s websites. In most cases you can find the site by looking on <a href=”http://www.netronline.com”>NetrOnline.com</a>. Once there you want to look for your county’s tax assessors site where you can hunt down a property’s information by street address. There you can usually get the number of beds, baths, owner’s name, square footage, tax value and more. Be advised though that a lot of this information is not completely accurate, so try and validate the information another way as best you can.
A second avenue, if you have some extra money in your budget, is to sign up for subscriber services such as <a href=”http://www.realquest.com”>Realquest</a> or <a href=”http://www.ElectronicAppraisals.com”>Electronic Appraisals</a> to get recent solds and current for sales. This would probably be the next best thing to the MLS, but again will not be as accurate and is very area dependent.
Lastly and least recommended are sites like Zillow.com who use a computed valuation. I’m not sure of the formula they use to get their “values” but any time you are dealing with a formula you can bet it’s not always accurate and can be way off at times. Zillow and other services like it are a great tool for getting the sense of a neighborhoods value. For instance I use it to see if it’s a 300k or 600k neighborhood. Although if you have really studied your farm area you would already know this like the back of your hand.
Now that you know where to look for comps, lets talk about how you should look. There are 3 main features of a property that you should be using to determin your comps. Size of the house, location of the property and number of beds and baths.
When talking size, we mean square foot of the house as well as lot size. If you stick to houses with between 15% and 20% of your target house you will be doing good. Be advised that if one of your comps is 100 feet smaller, it does no make your house proportionately that much more expensive. I.E. a $100,000 house that is 1000 sqft does not make your 1100 sqft house worth $110,000. It all really depends on how the extra space is used. If the extra 100 ft is used for a bathroom then it would make it more valuable as opposed to the space used for a nook.
Location. You always here the number one rule for real estate is location, location, location. So true! This is why it is so important to know your farm area. If a house is one block over it might mean the difference of 50k or more. Make sure when you get your comps you go no further then a 1 mile radius if possible. The closer you can get to your house the better. Ideally a comparable sales in the same subdivision would be like gold!
Last but not least are Beds and Baths. Obviously you should try and match these up to your comp properties. The differences between a 1,2,3,4 or 5 bedroom houses sometimes are big, but other times the extra bedroom doesn’t really ad much value. The magic numbers for beds in a house is 3. A house with 3 bedrooms is a lot more valuable then a 2 bedroom house and the same goes for a house with a 2nd full bathroom. A 4 bedroom house or one with 3 bathrooms only makes the house marginally more valuable, but again it depends on the area. If you are in a 4 bedroom, 3 bathroom neighborhood you probably will suffer a big hit if you only have a 3 bed, 2 bath house.
Some other things to take into consideration, depending on area you are wholesaling real estate in, are garages, pools (could be good or bad), closets and kitchens.
One last note, but definitely not something you can afford to overlook. Know who your competition is! Get all the properties in your comp area that are currently on the market. You must know what they are selling for so you can competively price your house. The quickest way to sell your home is to offer the best house in your market for the cheapest price…i.e. more for less.
Hope this helps.