How do you estimate costs to analyze past sales?

Question

I am just starting to look at potnetial opportunites and I have been looking through past sales in MLS from several neighborhoods that I am thinking of investing.  Without a solid grasp on what expenses and other costs for each property, how do you come up with ballpark measure of past sales to understand neighborhood opportunities better? Should one just estimate costs and work off those estimates?  Anyone who has any thoughts on this subject, your feedback/guidance would be greatly appreciated.

John Santero · Answer

I think you mixed up a few stratergies in one sentence;

1. Without a solid grasp on what expenses and other costs for each property,

2. how do you come up with ballpark measure of past sales to understand neighborhood opportunities better

What is the end result of the purchase- hold or flip.

I work from the top down. I first determine what the rental range is (for hold) or sales price is (for flip) than I see the property to determine the expense to get it to where I want it to be- (get a GC or contractor to estimate) then I take the sales price subtract my profit and expenses and that number is the highest I will pay for the property.

#2 answer- get comps and determine the sales mediem sales price and be under it

#1 answer - get qualified subs to bid the job

Elizabeth Colegrove · Answer

You have to know and understand the areas for that question to be answered! In the areas we invest our houses are "cookie cutter". Therefore you can look at the pictures and usually know the condition.

Another way is buy knowing the "range" of prices. My realtor has me hooked up to the automatic list of all new houses. I know the "ranges" of $ per square foot. So when I see a "low" square foot I always ask the issue.

Philip Tretola · Answer

Thank you very much for your answers to these@John Santero yes, I did jumble a couple of concepts, but trying to incorporate a top-down strategy as well and just working through numbers and comps on the areas that I am looking at so that I can come up with some rules as to when to actually put more time into analyzing a deal...thanks for your thoughts

@Steve Babiak I need to get comfortable around the contractors process and costs still as havce enver had any experience with them...do you recommend any good strategies before I'm acutally looking at a deal?

Steve Babiak · Answer

@John Santero has identified the issues here IMO. If you are going to be a landlord, you learn what expenses will be tenant paid in that market, so you then know what expenses are landlord paid and must come from collected rents. And you have to learn the neighborhoods where purchase prices vs rents actually make sense for holding rentals. Repair costs to fix a place up will be incurred by both landlords and flippers, so learning how contractors prepare estimates (roughly) will help in both of those activities.

How do you estimate costs to analyze past sales?

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