An important skill for a home investor is to accurately value property. The success of home investing comes from buying property at low prices and selling it at a higher price. These tips will help you do a quick property estimate value instead of spending money on an appraiser or agent. However, the guide only covers homes and small residential property.
The Sales Comparison Approach to real estate valuation (SCA) or the quick and dirty valuation is commonly known. SCA is a process an appraiser, and real estate brokers use to get a value estimate by comparing one property and others that are similar in the market.
Home investors buy fixer-upper properties and learning this evaluation skill will help them get the potential value of the property. The value is what is called after repair value (ARV). Investors with experience in a given neighborhood can use this evaluation to make a decision. First-time investors can use it before getting assistance from others.
Here are the three steps for getting after repair value of a property.
- Gather information on the specific property
The valuation process starts with the subject property. The subject property is the one you are interested in and trying to get a value for. The subject can be an opportunity to present an offer on the property or one of your existing properties if you are selling. The key to a good value estimate is to get accurate information on the property. Here is some of the information you should gather.
- The location
- The lot or yard
- Features of the building or house
When getting information on the subject property, it is advisable to see the property for yourself and not rely entirely on online listings.
- Gather information on other comparable properties
Once you are done with the first step, you should get information on other similar properties. You can get the information on online listings. You should look at:
- Sold properties that do not include distressed sales.
- Properties in the same location
- Same size
- Same number of bedrooms and bathrooms
- Compare both for you to get an estimated value
After you get the comp information, it is time to compare it to the subject for an estimated value. Since this is an after repair value estimate of the property, it will not be very detailed. You will need to think like a potential home buyer and find out if the best and worst property. You can look at the compass and find out f they are better or worse than the subject.
The quick and dirty formula helps you determine if the property is worth investing in and also makes sure you do not overpay. You need to practice so you can get a grasp on this kind of valuation. After getting these values, you will need to get a more detailed valuation to get more certain. However, knowing how to do this valuation is the first step towards making the right investment choice.