Are you looking for an investment property to flip? So how do you analyze the potential of that property? You look at comparable properties, right? But are they really comparable properties? Although it’s important to build your analysis from the ground up, in a competitive real estate market you don’t really have the luxury of time on your side. This means you need to be able to analyze and make decisions quickly.
The first step is to have a reliable system for your analysis. This is critical. I recommend you start with a radius search of no more than 1/4 to 1/2 mile. The further you get away from the subject property, the comparable properties are less likely to be similar to the subject property in a variety of ways. The comparable properties might be on the other side of a major street, which can add or subtract from the actual value. An appraiser will tell you that the further out the comparable properties are, the more adjustments they must make for offsetting factors, i.e. distance, different neighborhood, other amenities, etc. In contrast, when you have a tight radius, the age, size and other characteristics tend to be more similar to the subject property and will provide you with much better supporting data.
The next important step is to look at the square footage. At The Equity Finders, we analyze all properties on a price per square foot basis, which is the great equalizer when analyzing properties. Our exclusive SmartMap software provides us with a fairly tight search criteria of plus or minus 10% of the square footage to evaluate the comparable properties. This keeps comparable properties as close as possible to the subject property, which then allows us to use the average price per square foot to determine the value of the subject property.
Now if you’re thinking to yourself, “I’m interested in flipping a property, so how do I calculate ARV (After Repair Value)?” That’s a great question, which leads me to my last point on comping investment properties.
As an investor, your goal is to buy low, renovate, and then sell high. In addition, you want to sell the property as quickly as possible to keep your carrying costs to a minimum. The first thing to consider is are you buying a property in a transition area? If so, it only makes sense that the renovated comps will have a higher price per square foot than the rest of the comps in the area. By multiplying the subject property’s square footage by the average higher price per square foot, you’ll be able to determine the subject property’s after repair value or ARV. Second, whatever comping system you decide to use should provide all the pictures of the comparable properties. These pictures are priceless. You’ll be able to see exactly what improvements were made to the comparable properties to achieve their ARV price. One of the biggest reasons people fail at flipping properties (besides not having a great comping system) is they make the mistake of over-improving the property. They end up spending money they’ll never get back. Another reason is they don’t have a solid marketing plan in place to sell the property. You see, you don’t really complete the whole flipping cycle until you actually SELL the property. That’s where your profit comes from. Although the process of buying and fixing up the property can be loads of fun, I hope your end goal is to make a profit, right? Please say yes.
So, what am I trying to say? You absolutely need a fast and reliable system when analyzing and comping investment properties. At The Equity Finders, we use our own exclusive SmartMap technology, which provides all the data you need to help you make smart investment decisions.
Our SmartMap ARV Comping System really does it all for you. Try our ARV and rental comping system for 10 days, absolutely free (no credit card required). Go to www.SmartMapComps.com to get started. I promise, you’ll love it.
Looking for your next fix & flip or rental property but need help finding the best deals? Go to www.TheEquityFinders.com/get-started/ and tell us what you’re looking for. We’re always here to help.
by Marco Leone, The Equity Finders + HomeSmart