Course Overview:
A Word About Comps:
When you are looking at comparables you want to keep your initial search as close to the original property as possible proximity wise.
Be aware for that comps that are across main roads or major highways.
This is a good indication that the property is in a completely different part of town which could swing the value up or down a bit.
There are some markets in the US (i.e Baltimore where comps are literally block to block and street to street.)
If this is the case you have to be extremely careful to keep your proximity very tight ie. Less than half a mile and may even want to look for properties on the same exact street or block to be the most accurate.
A word about ARV:
After Repaired Value
The ARV can be determined by finding the high comps like mentioned In the videos below.
While it is beneficial to have a general idea of the ARV, it is not crucial to coming up with your offer.
The ARV is more for what a buyer might think he could get for the property.
Each buyer is going to have a different opinion of ARV and how close to the ARV they will will ultimately buy.
A word about MAO:
Maximum Allowable Offer
The MAO formula was the original formula that wholesalers would use to determine an offer.
The concept is to take the ARV and multiply it by 70%
You would then subtract the repairs of the property and then your assignment fee and this would determine your offer.
For example:250,000 X .70 = 175,000 – 50,000(repairs) = 125,000 – 10,000 (assignment fee) = 115,000 offer
While this sounds good in theory there are a few problems when making offers in a competitive Sellers market that we are in now.
Problem 1– It requires you to really drill down on the ARV and this number can be relative based on the buyer.
Problem 2– It requires you to estimate repairs.
The repair number is also subjective and some buyers will be able to get repairs done for less as they may have their own crew or not be renovating a property to the level of an HGTV finished product.
Problem 3– While the number is an awesome buy price because it will be so low it will be difficult to get your offers accepted at this number.
The only time you may want to use the MAO formula (use with caution)
You can use the MAO formula when you are in a low competition situation.
This means if you find a property from your marketing or otherwise and you sense the homeowner is not dealing with any other investors.
You can make huge assignment fees if this is the situation.
Just make sure that you are not bidding yourself out of the deal and use sparingly.
DETERMINING YOUR OFFER
When you are using either the hidden comps strategy or looking at the lower numbers your assignment fee is going to be determined by how much lower you can get the property contracted than either the comps of what the investors paid before they sold to have it to an end buyer or lower numbers.
For Example –
You have a property where your lower numbers are ranging from 75-85k. If you were to offer 70K you could potentially have a profit of 15k.
Offer Strategy
If you are able to get the property based on the low comps number and sell on the comps from when it was sold before it was fixed up this will result in the best deals.
Example #1
You have a property and the low numbers are between 80-90K . You secure the deal for 75K. you notice that the hidden comps buyers are 115K. In this situation you have the potential for a 30K profit.Sometimes you won’t be able to get the property based on the low number and you will have to work your numbers off the hidden comps to stay competitive.
Example #2
You see a property that just sold for 275k. You look at the mortgage and transaction history you see the buyer paid 150K . You could offer 140K with the goal of moving the property for a 10k assignment.
Now lets get into some examples:
Formulating Your Offer With Many Comps
Take Aways:
Look for the High Comps
When we look for the High Comps we are looking to see what the MAX the property could sell for when it is fixed up.
This number is important but what is even more important is looking at the data of the property BEFORE it was rehabbed.
This is refereed to as my “Hidden Comps” strategy. (Please note it is important to look and see that the previous buyer was an LLC or INC in order for this to work.)
You must look at each one of the high comps and look at the mortgage and transaction history inside of propstream to verify the previous owner.
This strategy works well when you can find at least 2-3 Hidden Comps
When we do this we will find 2 things.
1. The actual Price of the property BEFORE it was rehabbed
2. The actual buyer of the propertyLet’s say for example you see a high comp for 250K and then look at the mortgage and transaction history in propstream and see that the previous sale was for 125k and it was from an INC or LLC.
When you can identify these numbers quickly it will put you in the perfect position to do what we refer to as a Price Anchoring
Price Anchoring
Price Anchoring is the practice of identifying an “As-is” sale property and using it in a conversation to make an offer without making an offer.
Example: I see that a property on 123 Main St went for 125K … I know you said yours needed work how much were YOU thinking of selling for if you didn’t have to make any repairs or pay any fees or closing costs?”
In order to do this quickly while talking to a seller you will need to pull up the high comps and quickly move through them to identify these properties.
The video outlines EXACTLY how to do this.
Formulating Your Offer (Low Comp Properties)
When we look for the low comps we are looking to see the bottom of the market.
This is easy to spot as noted in the video by the GREEN CIRCLES around the nuber listed by the property when you go search for comps.
You can easily isolate this in the filter search on propstream by checking the CASH BUYER box under the PUBLIC SALE SITUATION as indicated in the video.
The fastest way to get to a BOTTOM number is to sort the prices from lowest to highest and toss out the highest number especially if it is way over the average as noted I the video.
You can use this number when you are Price Anchoring as well when talking to the seller.
When you make your offer you know that any number below the bottom number is “money making territory” because you are working with bottom of the market.
SPECIAL NOTE: Please keep in mind that this number could be SUPER LOW and can make it difficult to getting your offer accepted. This could just be a number to “take the temperature” of the seller to see what kind of reaction they give you when you are price anchoring.
Your more competitive offers are going to be based on the Hidden Comps as indicated in the video above.When you are looking for the initial comps the best settings to use are
- SALE DATE WITHIN THE LAST YEAR (this is a preset)
- START WITH A .5 mile radius (preset)
- (Slowly extend out to 2 or more if it is a rural area. Be careful not to go too far and make sure the properties are in a similar location and have close to the same lot size and year built)
- SQUARE FOOTAGE (preset)
- PROPERTY CLASS is Residential
- PUBLIC RECORD SITUATION is ALL
- PROPERTY TYPE is Single Family the majority of the time
- YEAR BUILT keep your range broader for older properties and less broad for newer..
- (a property built in 1975- I would search for 1900-1985) (A property built in 1985 I would keep it within 5 years like 1985-1989)
- SUBDIVISION- If there are enough comps you can keep the same subdivision but this is optional