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Mastering Property Valuation for Real Estate Investors

Good morning, investors! Today, we’re diving into one of the most crucial skills you need in real estate: property valuation. Accurately determining a property’s After Repair Value (ARV) is essential for your success.

Why Proper Valuation Matters

Knowing the true value of a property can make or break your investment. It’s not as simple as checking Zillow or Trulia. Accurate valuations come from understanding how to correctly run comps and interpret the data.

The Art and Science of Valuation

Valuing a property is both an art and a science. Different investors may have varied approaches, but there are fundamental principles you need to grasp.

Key Factors in Property Valuation

Comparable Sales (Comps)

When determining ARV, the most critical data comes from actual sold properties. Pending or active listings don’t provide the same reliability. Look for sold properties that match the condition and upgrades you plan to make.

Quality of Rehab

Your rehab must match the quality of the comps. If the homes in your area have granite countertops and hardwood floors, you’ll need to match or exceed that level. Skimping on materials will lower your ARV.

Property Size

You can only compare properties within 20% of the size of your house. If your property is 1,000 square feet, your comps should range from 900 to 1,100 square feet. Anything outside of this range isn’t truly comparable.

Year Built

Stick to properties built within a decade of your property’s construction year. If your house was built in 1982, look at comps from 1980-1989.

Major Roads and Unique Features

Crossing major roads can drastically affect property value. Stay within the same neighborhood and avoid crossing these invisible boundaries. If your property is on a major thoroughfare, or near unique features like railroads or power lines, adjust your valuation accordingly, usually by knocking off around 10%.

Using MLS and Propelio for Accurate Comps

While MLS is the gold standard for accurate comps, tools like Propelio can simplify and speed up this process. They provide user-friendly interfaces and allow for thumbs-up, thumbs-down comp selection, doing all the heavy lifting for you.

Handling Oversized and Undersized Properties

Oversized Properties

For homes larger than the average, use the full price per square foot for the first 1,000 feet, then reduce the price per square foot by two-thirds for the additional footage.

Undersized Properties

If your home is smaller than the average, you can often use the full price per square foot, but aim to match the minimum selling price in the neighborhood for safety.

Special Considerations

Pools and Amenities

Pools typically add about $7,000 to ARV. However, this can vary based on the market and pool condition. High-end pools with elaborate landscaping could add more, while outdated ones might subtract from the value.

Schools and Public Services

Being near a school can have mixed impacts. Some families find it appealing for convenience, while others may find it unattractive due to noise and traffic. Generally, being in front of an elementary school might require a minor ARV adjustment.

Conclusion

Accurately determining a property’s After Repair Value (ARV) is vital for making successful real estate investments. Mastering the art and science of property valuation involves understanding key factors such as comparable sales, quality of rehab, property size, and unique features. Utilizing tools like MLS and Propelio can streamline the process, ensuring you make informed decisions.

By applying these principles, you’ll be well-equipped to assess property values accurately, maximize your investment potential, and ultimately achieve greater success in the real estate market. Happy investing!

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