This was born out of frustration because of SO CALLED DEALS coming into my in-box. Everybody (even the smiling faces) that come(s) to investor meetings, yes, even ours, are not always entirely truthful in their presentation of
"Comps" for their supposed deals (among other representations, such as repairs...another subject for another time).
If ANYONE brings you a deal (in person, at a meeting or over email)- PLEEEEZ do your Due Dilligence.
Regarding Comps you are FED by a WHOLESALER see below:
(Especially in case you are very new, and have enough money to get yourself in trouble...)
- One (or two) comps DO NOT make a solid Comparable Market Analysis (CMA/comps report). Taking the AVERAGE OF about 4-5 sales is usually the minimum for reasonable safety - the more the better (to a point).
- AND they need to be from a reliable source...and that source should NOT just be the person BRINGING you the "DEAL".
- AND just because there is ONE comp, (the highest of all on the report) that shows a particular (price per sq. ft) $psf (in *this example linked below, is $109), that doesn't justify BUYING the house based on that $109 $psf expecting /using that as your expected Sales Price when you sell! That's setting yourself up for failure and likely losing money!
- You need to use an average of about 4-5 minimum to base your Rehabber's math off of, not the highest price per sf. ($psf). And, if the deal/numbers work using the AVERAGE, then once you have it ready for the market, go ahead and swing for the fences - Price it at the top of the market (or even higher if you did a SUPERIOR FINISH OUT on the house!)....but just in case you don't get that market high, you will still make decent money if you have to sell it closer to the neighborhood's Average Dollar psf, or even a little below - that is what cushion and calculating conservatively is for - NOT LOSING MONEY!!
JUST FOR NEWBY'S info - basic rehab math/formula below. But, there are other factors to consider, so research and talk to others more experienced before diving in!
EXAMPLE: (ARV = After Repair Value)
ARV = $100k (hard to find in today's market, but I'll use for easy math!)
x .70 (wholesalers do about .65 or 65%)
= $70k (Starting point, then subtract repair estimate - be generous with this figure, better to over est. a bit)
- $20k in Repairs (estimated of course)
= $50 k Purchase price - about as much as a rehabber is going to pay...*some will pay a bit more, especially in this market...but don't join the club of those who are looking for the 'greater fool' theory!
BUT ESPECIALLY if you are NEW -*I dont advise paying MORE than this - beginner rehabbers NEED EXTRA CUSHION!!
This is NOT an entire primmer - just a word of caution about determining After Repair Value in a RISKY manner, thus jeopardizing your investing career, and your financial future!!
KEEP SAFE OUT THERE - network with trustworthy people, develop good relationships so you can have someone to 'watch your back'!!
If you're a NEWBY and appreciate the time i took to share this, give me some love in the replies - Thanks! =D
