What is the thing most wholesaler over look when judging ARV on a property ???

Question

Hey

Just a simple question, you as a investor what is the main thing that most wholesaler over look before contracting and marketing a deal to investor ?

When blasting to a email list what might be left out that your always looking for ?

I ask this because I'm trying to build a buyers list and I'm coming cross a lot of wholesaler and i want to figure out the common mistakes to try and stand out as much as possible

Thank for your help guys

Chris Feltus · Answer

It's not that simple. When selecting comparables, think about the word carefully, comparable. Its in the word itself yet so many seem to forget this at times. You are trying to identify comparable properties, comparing apples to apples, or like to like. This is just one component, in addition to that you will need to be able to estimate a conservative ERC (estimated repair cost) as well. Both of these factors must be correct for you to successfully market the property. You want to pull comps like an appraiser would.

1. Try and stay in the subject properties subdivision. If there is not enough activity in the subject properties subdivision you can go out in a radius or other subdivisions across local roads. Try and pick similar subdivisions with the same housing inventory/ amenities etc. How far your radius will go out will depend on where you live. Here in Texas, in the suburbs you can typically go out .5 - 1 mile and be pretty safe with your comps. However, using that same radius in the inner city of Philadelphia will not work, prices can very wildly from one block or street to another.

2. Don't go across major roads if possible.

3. Make sure to compare properties with similar square footage (the max I typically go is + or - 20%)

4. Make sure to DRIVE your comps. Don't try and be a desktop appraiser. Besides making sure your comps are accurate it will help you become an expert on housing inventory in your area.

5. Beds baths and garages. For instance if your subject property is a 3/2.5/2 (3 bedroom, 2 and a half bath, 2 car garage) then don't select a 2/1 as a comp. These are not comparable. With larger homes its typically acceptable to have some variance with the bedrooms. A 3/2/2 and a 4/2/2 can often be similar; however, the difference between a 3/2/2 and a 2/1 is night and day.

6. Sometimes the comps in the area are so weak you won't be able to find much of anything. In such cases I typically make a very conservative offer, typically 55-60% of what the properties tax assessed value is. Tax assessed value, at least here in Texas, tends to be conservative and lower than market value.

7. Pick a similar house style as your subject property. If your subject property tutor style dont pick ranch style homes as your comps. Similarly if the exterior is brick on your subject property, don't select wooden frame houses either.

8. Go back 6 months for most recent comps. Time is a factor when selecting comps. Sometimes when the comps are less than ideal you can go back 8-9 months. But make sure to think, how has the market changed since then? Has it improved, or worsened? And try to apply that to your evaluations.

9. Year built, try and stay within +/- 10 years of the subject property or better when pulling comps.

If you go around getting junk under contract that is not a deal but a dud you will tarnish your reputation make sure to do your research. If you need some help on where to get started with ERC, let me know and I can give you a quick write up on that as well. This was mainly focused on ARV, recall both ARV and ERC must be accurate to get a deal.

Estimating the ARV is more like 8th grade science. You remember the scientific method? We are trying to make an EDUCATED HYPOTHESIS as to what the property is worth its not an exact science.  Hope this helped, this sort of turned into a blog post.

Here are some additional great resources:

Danny Johnson Guide to Estimating ARV

BP Book on Estimating Repair Costs by J Scott

J Scott's Estimating ARV Primer

Ceasar Blackman · Answer

Thanks alot @Chris Feltus you made some great points, im taking notes and i am in the process of reading J Scott book on ERC. Im completely open to any of your suggestions on ERC