Be careful not to come up with an artificially high pre-determined value. Stay open-minded and objective. If the math looks strange, remember to ADD adjustments to the compared property to value it AS IF it had the same features as the subject property.
Example:
Investment Property Comparable 1 Comparable 2
(Rancher) (Rancher) (Rancher)
Sales price $100,000.00 $105,000.00
Days on Market DOM 45 no adjustment DOM 60 no adjustment
1 Bath 1 Bath no adjustment 1 bath no adjustment
1 car Garage 2 car garage -$4000 0 garage +$4000
Basement (finished) No Basement +$10,000 Basement (unfinished) +$2000
Total adjustments +$6,000.00 +$6000.00
"True" Value $106,000.00 $111,000.00
Value range of subject: $106,000.00-$111,000.00
From this exercise we can determine that the subject property should sell for between $106,000.00 and $111,000.00 within a 45-60 day period.
How much will it cost to repair it?
After looking at the comparable sales the investor need only reduce the repairs to understandable figures in order to calculate if the property can be purchased and repaired for 75% of it's market value (the 25% equity magic number).
To estimate repairs one could have any number of contractors offer bids and submit proposals, however the time required for meeting with three contractors and getting proposals may not be available. A quick-thinking, fast-acting investor can estimate work required by walking through the subject property and tallying the figures without a second appointment.
These figures are not hardcore, written in cement numbers but should allow a quick and easy comparison of value allowing a decision to be made after the estimates of repair have been performed.
The following should offer some averages for the more common repairs to a 1200 square foot rancher without a basement.
- Paint w/minor drywall repairs: $800.00-$1000.00 per house
- Carpet (one grade above builders): $1000.00-$1200.00
- Kitchen and Bath flooring: $300.00-$500.00 per room
- New Roof (try to repair first): $2,0000.00-$3,000.00 per house
- New Heating and Air: $1,000.00-$2,500.00
- Appliances (Save Money-buy used): $250.00 per appliance
- Miscellaneous Expenses: add 10% to total
Tip #1 Be sure that you are true to your investigation and do not allow passion or trepidation to sway your decision-making either way. It is more important that you swing than it is you hit a home run. (Bid often!)
Tip #2 Once the subject property is under contract be sure to get a home inspection (from BuildingSpecs for example) and estimates from more than one contractor. Improvenet.com is a great online source for contacting several contractors at once.
