Episode 301: Running Comps on Properties The Right WaySep 23, 2022
In Today’s episode of the discount property investor podcast, David Dodge explains what will be the worth of the subject property.
Things that will cover in this episode:
- Look for the comparable properties, the properties in the area and similar on the properties that you are looking.
- talks about the tips on how to find the best deals to your subject property that you are looking for
Explains the pros and cons of finding the subject property and also tips on how you can find the best deals
give an explanation of what will be the best asset that you need to know on finding the finest subject property, and also David Dodge discusses that you must have knowledge to be able to find the property that you want.
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David: Alright guys welcome back to the discount property investor podcast. I am your host David Dodge and today, episode 301, we are going to be talking about running comps on properties the right way, and the reason that I want to add in 'the right way' is because a lot of people will just go pull comps that are similar in size within a half a mile or a one mile radius, and if you're out in the country, that may be the only way to run comps but if you are within any populated area, in a county or a city or a metro and there are a lot of houses in the vicinity, the right way to run comps is to try to find properties that are as like as possible to the subject property but also as close as possible as well as have recently as possible been sold. So the reason that again, that I want to highlight how to run comps or running comps on properties and doing it the right way is because if you are new at this, you might not know or maybe you've been in the game for a little bit and you are still having trouble with this or struggling with this. So let's just break it down in this episode, keep it simple, we're going to start with what it is, right? What are comps? Well comps or comparables, it's just an abbreviation for comparables, and comparables are how we determine what a subject property will be worth, not is worth, will be worth once we fix it up. So we're gonna look at the comparable properties, the properties that are in the area hopefully very close by, hopefully very very similar. You don't want to compare a 3-story house to a single story house or a ranch house to a split level house, these are different types of houses. So you want to try to find as like as possible, you wanna try to find as close in square footage as possible. You can't comp a 700 square foot property to a 2600 square foot property, they're not like each other enough, okay? You also want to try to comp properties that have similar beds and similar baths. Now, we could take this to another level and we could say that we want to comp properties that are also going to be within the same school district and/or the same zip code. Now again, if you're out in the country or out in the area where you may not have a lot of properties around yours or you- maybe you're trying to comp a farm, well in that case yeah you may have to try to find comps that are a little bit farther away but typically I like to start with a quarter of a mile when I'm comping properties that are in the county or the metro or the city limits. So I start with a quarter mile, next I will start typically with 2 to 3 hundred square feet above and below. So if my property is 1200, well I'm going to look for properties that are 1100 to 1400. I'm going to go 200 square feet above and below and try to find properties similar. I'm also gonna typically start with the last 6 months of solds and I run a lot of my comps right now on Propstream and if you want a free trial, go to davelikesdata.com, D-A-V-E-L-I-K-E-S-D-A-T-A.com. davelikesdata.com will direct you to a 7 day free trial that you can get over on Propstream. I also run comps using my local MLS and I also run comps on Batchleads from time to time and you can also get a trial over there, batchleads.io/Dave. Great resources, great tools to run your comps. You can even use Zillow to run comps if you are able to find some sold properties on the app or the website that are very similar to your property and have sold within the last 6 months in the last quarter mile. So that is the best way, that is the right way to run comps, find properties that are like yours. Again, don't try to comp a property that's 800 square foot or 700 square foot to one that's 2600 square foot, it's not the same type. Also don't comp two stories to split levels or to ranches, try to find similar properties and I like to start within 1/4 mile. Now if you don't find any comps within a quarter mile that are similar in type, similar in bed count, similar in bath count, and similar in square footage then what you can do is you can start looking a little bit outside of those but typically your best comps, the best ones are gonna be within 2 to 3 hundred square foot, they're gonna have the same number of beds and baths, they're going to be the same type of property, they're going to be a recent sold property ideally sold on the MLS 'cause that would mean it would be a higher comp, not always but it should, MLS pretty much means retail, and also comps within the same school district and the same zip code 'cause those are gonna be the most like your subject property. Now, if you can't find comps on your subject property here's what you can do: go from 1/4 mile to a half a mile, a half a mile to maybe 3/4 of a mile, 3/4 of a mile to a mile, but go slow, don't make big leaps here. Go from 1/4 mile to maybe 0.4 miles first and then go to 0.5 and then to 0.6. You wanna try to keep your comp as close in proximity to the subject property you're trying to find comparables for as possible, it's very very important, that might be the most important is the proximity. Next would be your size, you don't typically want to try to comp a 4 bedroom to a 2 bedroom or a 5 bedroom to a 3 bedroom, you always wanna try to find comps that are going to be equal with beds. However, if your subject property has the ability to make an additional bedroom somewhere in the house maybe by putting up a wall or egress in a concrete window or a basement window to add a bedroom and make it legal then in that case you are able to go and comp against a different bedroom because you're basically going to try to get yours to be very similar to that. Also what you can do if you're not finding great comps is you can extend the sold date. So I start with a quarter mile, 2 to 3 hundred square foot, same exact bed count, same type, and I also start with a half a year or 6 months of solds but if I can't find a couple good comps in the last 6 months then I will expand my duration to when were these comparables sold, I may expand that out to 3/4 of a year or 1 year but the best comps are going to be the closest, the most recent, and the most similar in size and type, period. Okay? So I just want to make sure that everybody is aware the best comps are going to be the ones that are close by, similar in size, similar in type and have sold very very recently. So some of the things you can do is you can expand your radius in terms of your distance, you can expand your radius in terms of your time, go from 6 months to 10 months or 12 months or 15 months but again you don't wanna do that if you don't have to. And then another thing you can do is you can expand your square footage. Now, be careful when you expand your square footage. 2 to 3 hundred square foot plus or minus is gonna be okay however if your subject property is 600 square feet, that's a small property, adding 300 square foot to that property means that you are gonna be pulling comparables that might be 50% bigger. If you find a 900 square foot house and you're comping it to a 600 square foot house, that's 50% bigger. So when you are doing your plus and minus on your square foot, the bigger your subject property is, the bigger you can allow your range to be. So if I'm trying to comp a property that's 600 square foot, I'm probably not gonna look at any comp that's over 750 or 800 square feet because it's just- you're getting into a whole different type of house, a bigger house. Now if you're subject property is 1800 square foot or 2000 square foot, you might be able to go above the 300 square foot, you might be able to go to 350 or even 400 but ideally you're going to be within 2 to 3 hundred square foot, ideally you are going to be in a quarter mile, and ideally you are going to have comps that have sold recently within the last 6 months, but if you can't find comps for those ideal situations, again you can expand your horizons with your duration, with your bed and bath size or your square foot size or the time in which it takes to find the comp that sold so a 6 month, 10 month, 12 month, so on so forth. Pro tip here: start small and recent. It doesn't really do us any good to go a mile out in the middle of the city and find 1200 comps, that's an exaggeration but 40 or 50 or 70, you don't need that many comps. Ideally, I'm looking for 2 to 3 really good comps, reason being is the comps are gonna matter in multiple- for multiple reasons. One, you need to determine what you think your subject property will be worth once you fix it up so you know whenever you go to sell it or get it appraised that you're going to be in the ballpark of what you anticipate. So if you were going to sell the property, you may not need an appraisal but your buyer might and if you intend to keep the property as a rental, you are still gonna have to get a loan most likely and you're gonna need that appraisal again and that appraiser, when he is determining what your property is worth, he's gonna do the exact same thing, they are going to go and their gonna try to find comps in the local area. The closer, the better, the more recent, the better, and the more like the property in bed count, bath count, square footage count, maybe even lot size. Again, you don't want to comp a property that is not comparable so a quarter acre lot isn't a good comp to a 2 acre lot. So the right way to do comps is to find properties that are the most like your subject property and the closest to that property and the most similar and the most alike and these comps that you're finding, you want them to be the most recent, the more recent, the better. Now, some of the issues that I've had over the years when it comes to running comps have sometimes been hidden and I want to talk about some of these things really quickly before we wrap up. Number one is school district. School districts may change in the middle of a neighborhood, it may not be a major intersection or a major highway so you wanna be aware when you are comping properties that they're in the same school district. Now if your market has very very similar schools all across the county or the area or the city then it may not be as big of a deal but if you go from one school district to the next and it's a way better or way worse school district, that is going to change the value of the property. Another thing that may change the value of a property is if it is on a major road. You do not want to comp a property that is on a four lane road or a boulevard that may be even five lanes to a property that is in the back of a neighborhood or in the middle of a neighborhood on a street that's quiet. Typically a more quiet street is more desirable which means you are going to have a more or a higher ARV typically. You know typically what I like to look at is for any lane that a house is on over 2, I'm taking between 5 and 10 thousand off the purchase price in terms of my value and what I think it's worth. So I mentioned school district, keep an eye on your school districts. I mentioned busy roads, busy roads are gonna be less desirable than ones back in the neighborhood so again try to find comps that are equal or similar to your property. Another thing maybe is zip code. You know, zip codes again may or may not change from a busy intersection, it may be in the middle of a neighborhood or one side of the street is one zip code or one school district from the other. So when running comps, you want to try to find the most like to yours as possible and being in the same zip code may make a difference. Also furthermore, if it's near a river or a lake or a stream or a creek, check to see if your property is in a flood zone or if the comps are in a flood zone because they may or may not be good comps if they are and you're not or vice versa. So those are just some of the things that kinda can be hidden from you if you're not a pro at running comps, school districts, zip codes, flood planes. And then there's also things that I kinda mentioned a little bit ago about you know, lot size. You don't want to be comping a 2 acre lot to a quarter acre lot, so you're gonna want to find as like property as possible, as close in size as possible and as recent in terms of when it sold last as possible. Those are gonna make for the absolute best comps. Now, there are some other things that I wanna mention before we wrap up. Next would be amenities, if your house has a two car attached garage but it also has a two car detached garage then that is going to have more value than if it didn't have that additional two car detached garage so what you are going to want to do is you are going to want to add a little bit of value to the subject property if it has that garage. Other things could be sun porches or screened in porches or for seasoned rooms, it could be basements, it could be carports, it could be sheds, all of these things are going to matter when you're doing comps. So if your property has an additional two car detached garage, look at your comps and see if they also have that, maybe that neighborhood that those comps are in or that property's in, that's the standard or maybe you have comps that don't have that garage or they do, you're gonna wanna adjust the price of that subject property up or down depending on if it has it or not and if the comps do. Things like pools or hot tubs that maybe left behind or included in the home, those things may increase or decrease values and again, you are going to want to find comps that are very similar to your subject property. So to do it the right way, running comps the right way, doing it like a pro, you need to take your time, you need to find properties that are very close in proximity, you need to find properties that are very much like your property in terms of type of house, number of stories, number of square footage, number of beds, number of baths, maybe even the size of the lot, and then you're gonna want to find comps that have sold recently, start with 6 months or less, if you can't find any from there maybe go to a year and then from there you can go from a quarter mile to a half mile and maybe even expand your square footage if needed. But in a perfect world, we are not adjusting our duration and/or our distance, we are starting with a quarter mile and we're ending with a quarter mile, we're starting 2 to 3 hundred square foot plus or minus and we're starting 6 months or less on those solds to find and determine the best ARV and that's the whole reason we run comps is to find the after repair value of your property and then we determine how much the repairs are gonna be and then we're gonna then determine what a fair market value price would be once we know those two things. We can't determine a fair market value price until we know the ARV and the repairs, you just can't do it. So again you gotta get good at running comps guys, check out davelikesdata.com, D-A-V-E-L-I-K-E-S-D-A-T-A.com, it'll get you a 7 day free trial of Propstream, it's one of my favorite and easiest to use, they even have an app. I run comps on the fly all the time from my cell phone, you can use Zillow, you can even use batchleads.io/Dave, they have a comping tool that is actually been getting really good lately and I use that as well. So guys learn how to do it the right way, it's not that hard. Keep it simple, don't overthink it and you got this. Thanks for listening, signing off.
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