flipping houses - pulling comps and determining ARV in today's housing market

Let's face it, years ago there were only two kinds of sales - retail and wholesale.  And, in addition, there was a huge gap between the two, making it super easy to know which was which.  You'd pull 10 comps and 7 would be full retail purchases and 3 would be wholesale flips at roughly half the price of retail.  You'd uncheck the wholesale deals... and voila.... you had your ARV.

It was easy.  And, it took all of about 2 minutes.

Today, it's an entirely different ball game.  Pull 10 comps today and what do you get?  It's the exact opposite!  If you get 2 retail sales it's a freaking miracle.  Comps today are littered with short sales, REO's, auctioned properties, wholesale flips and a bunch of other micro-niche's that I've probably never heard of.  And, the selling prices are all over the freaking place, making it extremely challenging to figure out what is what.

And, you need to navigate through all these numbers to figure out what the house is worth if it were in perfect condition.

Here's how you do it:

Use The MLS
But Maestro, I'm not a realtor.  I don't have access.  How am I supposed to use a resource when I can't even log in?  Blah... blah... blah.

Look, where there's a will, there's a way.  I'm sure you know a realtor... or twenty.  Call each one and ask if you can use their login and password.  If he or she says no, hang up and call another.  And guess what?  A lot of investors have their licenses.  Call some of those guys up, too.  You're bound to get someone who is willing to hook you up.

This is important.  There is simply no other site or resource out there that comes close.  There's the MLS, with Realquest.com coming in at a distant second.  And then there's everyone else.  And, it's no coincidence that the best sites charge for their service.  They do that because they can.  But, believe me, it's worth it.

If you can't get access, use a combination of your tax assessor's fair market value and the free values from eppraisal.com, realtor.com, zillow.com and any other free site you can think of.

Start With A Narrowed Search
When pulling comps, keep your search very, very narrow at first.  Use a half mile, same beds/baths, + or - 10% SF, within 3 months.  If you pull one... boom!... you're done.  If not, gently expand out.  Start by expanding the beds and baths to + or - one.  Then, if need be, expand out the sale date to 6 months.  And, if you still fail to pull a retail comp, go out a mile. 

If you're still comp-less... give up because you live in the sticks and you can't flip houses there.

Find Just One Recent Retail Comp
Remember when I said you're lucky if you pull two retail comps?  Well, you don't even need two.  One will suffice.  If you pull ten comps and just one comes up at full retail price, and it's within the last six months, you've got a winner.  Back in the day, you wanted at least 7 comps to average out.  Today... fugetaboutit.

Just fine one.  Take the square footage of the comp and divide it into the price, giving yourself the price per square foot.  Multiply that with the square footage of your house, and you've got yourself an ARV.

Wholesale Deals - Discard Or Keep?
This is the big question.  I remember a day when short sales and REO's were going for $.50 on the dollar.  Today... not so much.  So, what do you do when you pull comps and get one retail, one REO at 80% of the retail and one short sale at 75% of retail?  Do you keep them in?  Most realtors will tell you to keep them as there abundance makes them part of the market. 

Hmmm... decisions, decisions.

Here is what I do.  Keep them in and base your offer to the seller off of that averaged ARV.  Those wholesale deals will drag the ARV down.  That, in turn, will drop your offer.  But, you have the comps to justify it.

But, after you get the house under contract, you use the full retail comp only when marketing your property.  If you can pull it off, this will increase your profit dramatically.  Here is the conversation...

You to the Seller:
"I know the offer is low, but your house is only worth $60,000... and that's if it were in perfect condition.  I can't justify offering any more for a house worth so little."

You to your Buyer:
"Man, have I got a gem for you.  The ARV on this beauty is easily $90,000.  There's a recent sale on the same street just a few months ago for that exact amount.  And, I'm giving it away at $.50 on the dollar!"

Sneaky, I know.  But profitable... you'll see.

Now get out there and flip something!

Andrew "The Maestro" Massaro
www.WholesaleCoaching.com - I'll personally mentor you to financial freedom through flipping houses!