he other day I had a call from an investor friend who asked how I determine
values in this crazy market. The first thing to do is to pull the comparable
property sales. Comparable property sales are properties that are as close to
the subject property as possible. I know that an appraiser would say that you
could take properties from as far away as a mile but we know a mile away is a
long distance and neighborhoods can change significantly in a mile. I look for
properties as close to the subject property as possible. The best would be on
the same street Julian
Edelman Jersey Cyber Monday , block or neighborhood. You want it to
be similar square footage. If you are talking about an 1800 versus a 1900 square
foot house your average buyer is not going to see that hundred foot difference.
If you are talking about between 800 square foot and 900 square foot obviously
your buyer would see the difference between those two houses. There should be
similar bedbath configuration. Similar in age, age is something that is
relative. If we are talking about a ten year difference between a house that was
built in 1996 versus a house built in 2006 then yes buyers would see a big
difference between those two houses. If you are talking about the difference
between a house that was built in 1959 and a house that was built in 1969, still
a ten year difference, your sellers wont see a difference between those. You are
looking for houses that are essentially the same in your buyers eyes. Now
assuming you have that, what are the comparable sales? What are you seeing that
has sold? In this crazy market it is no longer enough to know the value of the
houses that have sold in the last six months. What you now have to do is look
more at what is happening. Look at the trend. Break down those comparables and
find what has been selling each month of the last six months so that you can see
a trend. Yes, six months ago they were selling at this, five months ago they
went to this, four months ago they went to this Rob
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saying overall they are selling at this level you want to see if they are going
down. Are they going up? Are they staying flat? And if they are going down, at
what rate are they going down? How fast is that decline occurring and is it
picking up speed? Is it slowing down? What is happening with it? I also want to
know are there buyers on the market buying or is the market stalled? My investor
friend said there had been no house sales in the last four months. Well if there
have been no house sales, none, zero, in that area that concerns me. I can take
a house and I can make it the best house out there at a favorable price and I
will attract the buyers that are in the marketplace but if there are no buyers
it really doesnt matter what Im doing, Im not going to get it sold. You have to
look at buyers. If there are no buyers I would definitely not be purchasing that
house right now. If you are seeing an area that nobody is buying in then that
area must be an area of town that nobody wants to live in. Not an area that I
would necessarily want to buy in. Generally, that is not the case. The case
usually is that houses are selling. For instance, there are 200 houses on the
market and in the last 6 months 15 of them sold. Okay? That means 1 out of 10
houses are selling. That just means the market is slow. It doesnt mean it has
stalled out. Now a slow market I can deal with because I can take those 15
buyers and make my house the most attractive deal to them to get them to focus
on my house. Im not scared by that. The only thing that scares me off is if
there are no houses selling at all.
The next thing is looking at what is
listed on the market in the area today. Whats your competition? And how do those
prices compare to what is sold? In other words Julian
Edelman Jersey Black Friday , if you look at everything that has
sold, it was $200,000, but everything that is listed on the market right now is
at $180,000. It tells you that the prices are dropping. Nobody is going to list
their house at $180,000 if realistically you could still get $200,000. It must
mean that they are dropping their price because they are getting beat up by the
marketplace. Which leads to the next question, what are the days on market? How
long have those houses been sitting there? If they are well under what houses
have sold for in the past Ill bet when you look at the days on market and how
long theyve been listed they are starting to exceed 60 Rob
Gronkowski Patriots Jersey , 90, 120 days. The next thing to look
at is how many rehab dollars is it going to take to make the house the nicest
house in your price range. I am not saying to go crazy in your rehab and build a
palace when everything is on a lower income level. Thats not the point at all.
The point is to make it the nicest house in that area. Sometimes making it the
nicest house simply means that it has brand new carpet, paint, fresh
landscaping, just looks all clean and fresh. Then I want to be able to price it
right.
The next thing is to be able to determine how long it is going to
take to get this house on the market given the rehab needed. Is it going to take
me a month to get it back on the market? Is it going to take me six months or
more? The further out obviously the more risk there is. That is why right now
most renovators are looking for properties with minimal amounts of rehab so they
can get in, get out and not risk being in the marketplace too long. What you
want to do is project out when this house be on the market and figure out what
the prices will be at that point. If they have been declining at a rate of 2%
per month and you are not able to put this property back on the market for three
more months, then estimate a 6% decline on the market. Given that this is going
to be the estimated value of the property at that point. You will build into
your deal the right sales price and the right rehab dollars so you are buying
smart. If you buy Durin.