How to know you got a good deal on a property or not?

5 Replies

So what is the most accurate way to know you got a good deal on a property? Get a appraisal done on property? But it seems everything goes off comps so what in saying is you can buy a junk 3 bedroom/2 bath in a nice neighborhood and get it appraised and just goes off of comps. But you know that no one would pay that much for it in that condition. Thoughts on this subject please?

@Joshua D.

The best way I have found to determine if you have a good deal or not is to simply run the numbers. 

I personally don't worry with appraisals before I purchase because I am not in the business of tossing money away. Use the tools on this site and run the numbers based on payment, rent amount, expenses, and such. 

If it makes sense, go for it, if not walk away. Make friends with a realtor and ask them what a 3/2 would rent/sell for and then work the numbers to see if it works. 

Let me know if I can be of any help!

Find sales in similar condition to your subject property. If there aren't any, look at historical data. Perhaps there was a sale 2 years ago with similar condition and see what the variance between that property and typical properties were selling for and use that percentage to apply a condition adjustment. Try looking outside your immediate subdivision to similar neighborhoods to find homes with deferred maintenance and use those as comparables.

The way I know I got a good deal, is to rehab and sell the property. After all is said and done I run all my numbers and it tells me how good or great the deal really was. Prior to actually crossing the finish line and getting the checks cashed, the refinance done, or the rent rolling in, there is only speculation on how good the deal was.

Comps are used to help determine value. If a comp is in terrible shape, and the subject property is much nicer, an adjustment is made to the comp. Comps should be as similar as possible in size, location, view, age, etc. Usually most appraisers will look at sales 6 months older or less and as close and similar to the subject as possible. Distress sales, bankruptcy, etc where a property sells for considerable less than FMV are not used by an appraiser. Adjustments are made to comps, never the subject property.

I believe in purchasing at 70-75% of ARV. Sometimes there are not good comps nearby, but it helps knowing your area and what thing are selling for in general. So if your buying a property that you think comps out around 100k (ARV), but needs 20k in repairs, i would pay 50-55k for it. It is also important to know your repair costs otherwise you can not analyze a deal. But in reality their are always comps, even if you see properties for sale, but their not selling, that tells you the price is either too high or there is to much inventory, which can help you with determining what a reasonable value is.

Anything being purchased below market value is a good deal, some people are happy with paying 90% of market value, some wont pay more than 60%. The more work it needs, typically the bigger discount you can get even when factoring in repair costs

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