How To Properly Value Properties
Accurately valuing properties is one of the most important things you can do as a real estate investor. It’s important to understand how to 'comp' properties and compare them to other like kind properties. There's nothing more beneficial than finding recently sold properties to help you create an opinion of what your property is/will be worth. But this is just the beginning....
As an investor, you can’t just guess what your property is worth. It doesn’t work like that. Valuing properties is opinion based on actual sold properties, current active properties, market conditions and your own execution. What you will sell a property for is going to be different than what I might sell the same property for, or what another investor will sell that same property for.
You probably haven't heard this before but a very important factor on what you will sell a property for is determined by how well you execute. Execution is everything. I have seen one investor that has made a fortune on a property while another investor in the exact same situation completely screw it up and lost everything. Execution in this case has to do with how well you bought the property, how quickly you renovated it, the quality of your renovation, the proper layout, materials and improvements on the property, your resale strategy, etc...
The important thing to understand is that comps are just a basis to start with and then you can adjust based on all the things you do.
I talk to so many investors that say, “I think I’m going to sell it for this price since that is what others sell for.” That is typically a few thousand dollars higher than the last sale since they claim theirs will be 'better'.... I hate to say it, but you're not. If your a newer investor you probably don't know the quality or layout retail buyers are expecting in that particular area yet. You can't compare yourself to somebody who’s flipped 100 properties in that neighborhood. It's just not going to happen on your first or second transaction. It will happen eventually as long as you learn from your first few deals.
Obviously its important that you have access to MLS so you can pull comps and know what you’re looking at. Compare price, location, layouts, colors, quality and resale listing strategies... It won’t be a matter of a bunch of properties in an area selling in order for you to properly strategies your game plan. Remember, if you are trying to compete for the highest price with veteran investors, it must be exactly the same quality and similar situation.
There's a lot of determining factors in really knowing what a property is worth. It's not as simple as figuring out what the 'comps' say. That's a great place to start, but then you have to rip them apart to get down to the different components so you know exactly what it will sell for.