There is a lot that goes into being a new investor. Between terms, education, numbers and estimates, it can be very easy to get swallowed up with everything there is to know. After you are done figuring out where you want to invest the next most important thing you need to know is how far your dollar will go in that market. You can do everything right to acquire a property, but if you are significantly off with your resale estimate you will be left with little to no profits. Before you make a single offer, you need to know everything about the market in your area. Understanding comparables is a great place to start.
The best investors are the ones that can look at a property and quickly evaluate how much any work will cost and quickly determine a resale price. Of course this is a skill that takes months and sometimes years to perfect, but it is a skill good investors need to have. If you do not know how much a property can sell for, you can’t know how much work to put in. This practice takes time and due diligence. Looking at what has sold and what is on the market will serve as the catalyst to your price point.
Take a look at every property that has sold over the past 90 days. Your realtor should be able to provide you with the listing sheets from the MLS. That sheet will give you information as to the style, age, condition and size of the property. Look for any amenities that were included as well as any deficiencies with the property. You can see if the property was a short sale or in foreclosure. There will be information as to if the seller was in probate or if the property was sold in as-is condition. All of this information will give you clues as to where the market was and where it was headed. From there, you can gauge a general idea of future price points and see what you would need to improve with your subject property.
In addition to any properties that have sold, you should look at what is currently on the market. This will be your competition for as long as your property is for sale. If a similar size home on your street is on the market, you probably won’t garner much interest if you are 10% higher in price unless your house is of significant quality. You have to think about what sellers will look for and what their target price points would be. Many investors make the mistake in over-inflating their sales price based on the work they did or the condition the property was in when they bought it. Buyers don’t know and probably don’t care about what the rehab process was like for you. All they care about is the finished product and how it stacks up against other properties in the area.
If you can have a good grasp on the comparable sales in your area, you will be ahead of the game. If you take the time to see exactly what has sold, for how much and why, you can use this to your advantage the next time you make an offer.
