I was lying in bed, my head rushing with fantasy. How could I sleep? I was five or six and the next day my family was leaving to go on a beach vacation with my Grandma Ruby. I had been sent to bed but I was fully adrenalized. I envisioned building a beautiful sand fort with a working drawbridge and moat. Grandma and I would sit inside and play without my pesky little sister. Bahahaha! (Picture that in evil laugh tone.) We would have ice cream, and I would jump right into the ocean (without waiting) and swim with the mermaids!!!
I am not sure how long it took me to finally drift off to sleep but I can tell you it was not early enough….
I awoke tired to a high-strung mother, wound up like one of those creepy toy monkeys that play cymbals. My dad already rolling his eyes and saying, “Is it really worth getting this upset over?” My crying sister has somehow gotten a hold of gum that might be in her hair.
And this home for $165,000.
What is the difference? Six blocks. This is why you need to be sure that your realtor knows your market and is pulling comparable sales from the right properties.
2. Compare your apples to today to today’s apples. Look for sales in the past 90 days if possible. You will want a broad spectrum of comparable sales but you want them to be the most recent. I would only recommend going back further if there are a very few number of sales during the target time period.
3. Throw out rotten fruit and seedlings. Eliminate foreclosures and new construction. To be able to keep the fruit of your labor you need to compare the same fruits, apples to apples. You need to eliminate distressed sales, as they tend to be less than the average for the area, and the new construction because these tend to sell for a higher amount. You should be left with nice homes that sold in your neighborhood in the last 2-3 months.
4. Plan to pay by the pound. Calculate the price per square foot for each home not the “average sales price.” In many areas quick CMA (the condensed list of comparable homes) will have this listed for you. In some states this is something you need to calculate on your own. Here’s how.Divide the price of the home by the square footage. Let’s use the two homes above as an example. The pricy one is 3015 sqft. The other was a little smaller. We will use 2207.
We see that a person will pay $210.61 for each foot of living space in the first home but only $61.17 for the second.
5. Weigh your fruit. Find the average price per square foot. To do this you will simply add all of the numbers together and divide them by the number of properties. We learned earlier that the two properties here are not good comparables but for the sake of the exercise we will use them. Remember, there should never be this much difference in price to be a comp and you should have more than two.
In this scenario, the price per square foot is $135.89
6. Get your flipping money’s worth. Calculate to your ARV. To calculate the ARV of YOUR property You will multiply the price per square footage by the actual living space of your home. We will use 2600 sqft for this.
The After Repair Value of your property is $353,314.
This formula is not just for ARV. This is good for finding the value for all of your homes. Now go make some big bucks!!!
Happy Investing My Real Estate Junkies!!!
I was born an entrepreneur. I am pretty certain that I was peddling passies in the hospital when the nurses left the room.All of the other kids in the neighborhood were riding bikes and playing with dolls I was selling jewelry out of a catalogue and creating a back yard consignment shop. At 21 I became a real estate investor and fell in love. This was/is/ and always will be my passion. I have been madly in love with flipping, holding, and writing offers on real estate that seem crazy for 18 years. Ladies and gents I am willing to share the love of my life with you. Maybe its polyamory maybe its jut because I can’t shut up about it. Either way I will be sharing every mistake I ever made and the lesson that came from it. I love questions. Please ask away!!!