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Choosing the best Comparables

comparablesI had a small appraisal business I ran out of my home for many years. This meant understanding property values came easy for me as I transferred my career into full time investing. Appraisers use several methods to establish value on a form called a Uniform Residential Appraisal Report (URAR) which includes the Sales Comparison Approach, the Income Approach and the Cost Approach. For residential properties, the Sales Comparison Approach is commonly given the most weight and the comparables are placed on a grid and appraisers make their plus or minus adjustments for improvements or deficiencies.

If you are looking to buy or sell a home you will need to understand how comparables or “comps” are used to determine value. This is the best way to understand not only value, but also how the market reacts to a particular style, its location and condition. Factors included in pulling comps from the market place include time, location, square foot, age, style, bedroom count and more.
Here are a few tips for choosing the best comps:

Select recent sales
Recently sold homes will reflect today’s market; ideally you will want to use sold homes that have transferred within the last six months. The more recent the comps the better, but that doesn’t mean you can’t use an older comparable, say one that is seven or eight months old. Just remember, you want to use the most recent sales to determine the value today.

Location
Use comparable sales that are in the same community. The closer the comps are to the subject property the better. Near by sale transfers are a good reflection on buyer’s reaction to the immediate area. If the subject property is located in an urban location, you may be able to pull comps within a 12 block radius of the subject property. However, if the properties location is in a rural location, you may have to go miles for a comparable. A good rule of thumb is to stay within a half mile radius of the subject property.
Pay close attention to favorable views or locations reflecting conveniences such as shopping or drive time to employment centers. Perhaps a sought after development or builder may have a positive reflection on value. If the property backs up to a rail road track you should have at least one comparable that has sold within the past six months of similar size, age and style as one of your comparables. This sale will reflect market reaction, if any, for buyers purchasing property, that may have a negative influence on value due to its location.

Style
Choose homes that are as similar to the subject property as possible such as style, age, square footage, number of bedrooms and bathrooms, total room count, amenities, lot size, etc. For instance, if the subject property is a ranch-style home, you would ideally choose other ranch-style homes that are similar in age and size. One-bedroom homes to one-bedroom homes, condos to condos all must be of similar age and square foot. The more similarities you can find in the comparables, the better you will estimate the value of the subject property. The more comps you use the easier it will be to estimate value.

Square foot
Square foot on the first and second floor is normally considered finished living area and this area is measured from the exterior of the home. Any unheated area of the home such as enclosed porches or garages are not considered finished living area. Your comps must be of similar square foot as to the subject property. I suggest you go 10 percent plus and minus the subject property. For example, if the subject property is 2000 square, you will pull a range from 1800 to 2200 square feet. Remember these are just guidelines and there is always a little wiggle room.

Age
Use properties of similar age as the subject property. Pull your comparable range from 10 years plus and minus the subject property. Properties built in the early 20th century have a different floor plan than properties built to today’s standards. It was common that properties built in 1900 typically have one bath but the builders today typically build homes with two and a half baths. New construction must be compared to new construction and I would tighten up my range for a home that is only a couple years old and only allow my range to be five years plus or minus.

Drive by
Now that you have your comparable in front of you, take time to drive by each one so you can physically see if they truly compare to the subject property. Pay attention to quality of construction, condition, location, nearby amenities and so on.

Use the tools in front of you
REI Black Book (REIBB) will pull comparables within the same area of the subject property but you will have to sort through and pick comps of similar style, size and age. You can also use the map feature to see if the property looks similar to the subject property. If you do not have REIBB you can also use Realtor.com, Zillow.com and Trulia.com to pull your comparables.
A true comparable will be a reflection of the subject property as to time, location, style, size, age, and quality of construction and they all must be closed transactions.

I hope that this blog allows you to better understand how to use and find comps when you are looking at a potential deal.

Market, Market and then Market some more

MarketingHaving trouble finding deals?

I was told the other day by a friend of mine, “Wholesaling is difficult”.  I think I gave a blank stare back with thoughts running through my head as to why would they would think that.  They stated it was hard to find a great deal.  Still taken back from their comment I found it to be an interesting comment, but not the first time I had heard it.  I’d like to believe that it must be easy for me because I AM THE QUEEN OF WHOLESALE; but in reality it truly just goes back to the basics.

I have taught a lot of students the strategy of wholesaling properties throughout my 14 years as a real estate trainer and I have given the same message to each class I teach.  In order to purchase a great deal you must have a motivated seller.  Anyone can put a property under contract but it doesn’t mean it’s a deal. It has been my experience that if you can’t sell your wholesale contract, then one or two things are probably a problem.  One, you have not marketed the property correctly and two, you contracted the property for too much.  If you don’t have enough profit in the deal for your new buyer they will not be interested in buying your contract.

So how do you find a great deal at the right price? Find a motivated seller or better yet, let them find you.  As a full time real estate investor I must find deals on a regular and repeated basis.  I need to find a source of real property leads where no one else is looking.  Once I have targeted possible motivated sellers, I spend time marketing, marketing, and marketing to that demographic.  I find that a seller tends to be much more motivated when they call me.

Once the seller calls you then just run the numbers like you are taught in class. Don’t overthink this part and stay true to running the numbers.  You have been taught in class that everything is based on the numbers.  You cannot make an emotional decision; you cannot will the numbers to work for you.  You have to put them into our time tested formula.  While many sellers will not take your offer, you will find that the ones who are motivated enough will.  Not everyone will like your offer; so what!  If the seller wants more than what you can offer, refer them to your Realtor.  Do not overpay for a property!!!  If you overpay for a property, then you will be the motivated seller down the road.    The key to successfully finding properties is to Market, Market, and then Market more.

When you are evaluating a deal, it is crucial that you make sure you are getting enough of a discount.  Often there are hidden expenses that students don’t think about.  Make sure that you are taking into consideration that you are going to have closing costs associated with the purchase and with the sale of the property.  You also need to budget for 6 months of holding costs.  If you are able to sell the property faster, then you will make more money.  If you budget less time and it takes more time, you will lose money.   You also need to factor in the repairs.  Finally and most importantly, you need to factor in your profit!!!  I have seen so many students figure all the other expenses and leave out their profit.  Remember you make the money when you buy the property, make sure that you buy right.

Wholesale Properties: 10 Tips to Help Sellers Find You

Wholesale Property Marketing

Wholesale Property Marketing

I was told the other day by a friend of mine, “Wholesaling is difficult.”  I gave a blank stare back with thoughts running through my head as to why would they would think that.  They stated it was hard to find a great deal.  Still taken aback from their comment, I realized it was not the first time I had heard it.  I’d like to believe that it must be easy for me because “I am the Queen of Wholesale,” but in reality it just goes back to the basics.

I have taught a lot of students the strategy of wholesaling properties throughout my 14 years as a real estate trainer, and I have given the same message to each class I teach.  In order to purchase a great deal, you must have a motivated seller.  Anyone can put a property under contract, but it doesn’t mean it’s a deal. It has been my experience that if you can’t sell your wholesale contract, then one or two things are probably a problem.  One, you have not marketed the property correctly or two, you contracted the property for too much.  If you don’t have enough profit in the deal for your new buyer, they will not be interested in buying your contract.

So, how do you find a great deal at the right price? Find a motivated seller, or better yet, let them find you.   As a full time real estate investor, I must find deals on a regular and consistent basis.  I need to find a source of real property leads where no one else is looking.  Once I have targeted possible motivated sellers, I spend time marketing, marketing, and marketing to that demographic.  I find that a seller tends to be much more motivated when they call me.

Once the seller calls you, then just run the numbers like you are taught in class. Don’t over think this part, and stay true to running the numbers.  You have been taught in class that everything is based on the numbers.  You cannot make an emotional decision; you cannot “will” the numbers to work for you.  You have to put them into our time tested formula.  While many sellers will not take your offer, you will find that the ones who are motivated enough will.

Not everyone will like your offer. So what?  If the seller wants more than what you can offer, refer them to your realtor.  Do not overpay for a property!  If you overpay for a property, then you will be the motivated seller down the road.

The key to successfully finding properties is to market, market, and then market more.

10 Tips to Help Sellers Find You

  • Advertising (REI Blackbook, Craig’s list, local paper)
  • Bandit Signs
  • Building your power team
  • Contacting Expired Listings
  • Direct Mail
  • Driving for Dollars
  • Fliers
  • Networking (Who do you know?  Who do they know?)
  • Social Media
  • Websites

Margie Cromwell
Rich Dad Education Elite Trainer

Are You Petrified of Probate?

Probate

Do you feel awkward contacting probate leads?

Through the years as a real estate investor, I have always searched for deals or, more importantly, motivated sellers that need to sell their property.  My search started with many marketing techniques including mailing out postcards to boarded up properties, hanging bandit signs, sticking magnetic signs to my car, advertising in the newspapers and on websites (I Buy Houses), and even using code enforcement lists naming sub-standard and condemned properties. I had varying degrees of success with each, but my most successful marketing campaign by far has been direct marketing to properties in probate. Please understand that I am not talking about following and contacting family members while they are grieving from the death of their loved one. I have seen some investors follow obituaries that are posted daily.  Can you even imagine how this conversation would go and how difficult it would be to build rapport?

“Hi! My name is Mary Investor and I saw your Aunt passed away yesterday.  I was just wondering if you would be interested in selling her house tomorrow?”

Not so smooth, is it?

Some may feel there is never a good time to contact the family regarding this matter.  Hopefully I can shed some light on this topic and make you feel more comfortable when it is the right time to approach the family.

What is Probate?

First, let’s talk about what Probate is.  In simple terms it means to prove or validate a will.  When someone passes away, probate will be opened at probate court. Now, in most states Probate will be handled by the county, but in the northeastern section of the United States it may be handled at the city level.  Each state dictates its own law and each county has their own filing system. Figuring it all out can be time consuming, but it will be well worth it at the end.

When someone passes away, their estate continues without them. Think about this for a moment: bills continue to come in, mortgages still need to be paid, property taxes are being assessed, utilities bill, consumer loan payments continue, etc.  These all are active bills that need to be paid on time, and someone will have to pay them.  If the mortgage does not get paid, what then happens? Foreclosure. What happens if the utilities don’t get paid? Utilities are shut off! You get the drift. So the estate can continue without the decedent, as long as someone is paying the bills.

It has been my experience that after someone passes away and there is no surviving spouse, the family may make the decision to open probate and settle the estate.  The timing for this is typically 30 days after death. I have seen probate open many years after death or, on the other side of the spectrum, as little as a few days from death. For the most part, 30 days is generally the time frame we are looking at.  Now remember, the bills still need payment. This is the main reason why probate opens and it is the family’s decision when they do this.  By opening probate they acknowledge they are willing to move forward to satisfy the estates liabilities and distribute remaining assets to the heirs.

As the old saying goes, “timing is everything.” The right time to contact these probate leads is when the estate probate opens. Once probate opens, the family acknowledges the need to move forward and understands how important it is to settle the estate. Now you have the green light to contact the family.  Now you can send your letters, postcards, or you can call them.

Here’s one last interesting fact about doing probate work: I have found that in many instances the family members whom I contact are grateful. They have been overwhelmed with the death of a relative or loved one, and they see selling the property as you lifting a burden from off of their back. So, if you’re like the rest of us who like making money and at the same time helping people, give probate a try.

Margie Cromwell
Rich Dad Education Elite Trainer

Overcoming Fear: Getting Started in Real Estate Investing

Real Estate Investing

Real Estate Investing

I spoke to a group of real estate investors about wholesale buying and selling.  The meeting reminded me that many people never get started investing in investment properties. Why? Because of their fear.

For some people, fear can be a great motivator, for others it can virtually shut them down and stop them in their tracks.  Fear can be a healthy emotion as it signals us to proceed with caution.  This is a normal and healthy response that our body uses as a protection mechanism to keep us safe.  However, we have to remember that fear is an emotion and emotions often can’t be trusted to be factual or true.

You have probably heard of the acronym FEAR.  This stands for: False Evidence Appearing Real.  New investors often imagine many things that could go wrong and then find themselves talking about the “what if’s”.  This is the fear of the unknown and it can scare us right out of doing a deal.  While it is important to proceed with caution, you should have learned how to put escape clauses into a contract, you still must proceed.  Even if something does go wrong, most of the time it’s never so bad that an investor cannot recover.

Stepping out of your comfort zone when trying to do something new will probably make you feel uneasy, apprehensive and fearful.  If you have never done anything like it before, it is quite normal for you to feel this way. But if you are never willing to step out of your comfort zone and pull the trigger, learn how to better yourself, and become more self-confident, you will never receive the feeling of accomplishment and the success that you deserve.

To overcome the fear that you are feeling, start educating yourself about the topic.  Find competent instructors that can teach you what you want to do. All of the trainers at Rich Dad Education are experienced investors and they can help you overcome your fears.  Seek out guidance from a Rich Dad Education Elite mentor or coach who can give you hands on instruction.  You must be willing to act upon what you have learned under their guidance. Now evaluate what you have accomplished or not failed at, what went well and what can you improve upon? Can you raise your competency level?  No matter how experienced you are, there is always another level to advance to.

Remember when you were a child and just learning how to ride a bike?  It probable took you more than several tries to balance yourself on that two wheeler. You probably had a few bumps and bruises along the way too, but nothing life threatening. The same is true in being a real estate investor and investing in investment property.  It may take you several offers before your first offer is accepted.  However, that doesn’t mean that you should give up.  You have to keep moving forward to become successful.

If you are teachable and willing to listen to your teachers, mentors, coaches and advisors you’ll be fine.  Get the education and over time your action will equal success.  Don’t allow fear to control you. Pull the trigger and get started now.  If you don’t know where to start, then sign up for a Rich Dad Education Elite Training course or mentor.  They will help you find the right path to start down.

Margie Cromwell
Rich Dad Education Elite Trainer

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