5 Property Conditions That Make Or Break...

Hey Moguls, Rob Swanson here…

Hopefully you remember me. We’ve shared three awesome training calls together, which you can (and should) check out here and here and here. And I recently explained my awesome 5-second formula for analyzing fix & flips.

Today, I’m back to help you guys focus on property conditions and how they can make or break your values.

As a real estate investor with more years of experience than I care to share (okay, so it’s over 10 years), I’ve seen this mistake time and time again, and each time, I cringe. When trying to determine the after repair value (ARV) of a given property, some investors compare apples to oranges.

It’s an honest mistake, really, but it just doesn’t make sense. So, let me break down this concept of apples to oranges and apples to apples, Swansonator style.

5 Conditions to Consider

There are 5 different types of conditions that I want you to be aware of, and I’m going to talk about each one so you're truly comparing apples to apples.

#1: New Construction

It goes without saying that a house is in its prime condition when it’s first built, so let’s consider a brand-new property top of the food chain when it comes to condition and comparing apples to apples.

#2: Fully Rehabbed Property

The difference between new construction and a fully rehabbed property is simply the age of the property. Obviously, new construction is brand-new, but rehabbed properties are older properties that have been gutted, torn apart and rebuilt into a fully rehabbed pristine condition.

apples Truth be told, both new construction and rehabs are tied for first place at the top of the food chain. But you need to understand the difference in comparing the future value or the existing value of a property when comparing a fully rehabbed property against new construction – mostly due to the age of the property itself.

Here's the thing... New construction isn’t necessarily more valuable. In some areas, a fully rehabbed house is actually more valuable than new construction. So you just need to understand how condition plays its part in your area.

#3: Livable and Clean

New construction, fully rehabbed, livable and clean. That’s all I’ve got to say about that. Self-explanatory, right?

#4: Livable but Needs Work

So, the condition in #3 is better than the condition in #4. After all, livable and clean is better than livable but needs work. Livable but needs work means you're going to have to dig into your pockets to fix it up, while livable and clean means the home probably just needs a quick cleaning.

#5: Total Beater

I’m talking knock-down, drag-out, total facelift – where no mop, magic eraser or vacuum will even begin to improve the condition. Remember that you can’t compare the condition of a total beater to the condition of a livable and clean house from a value perspective. That would be apples to oranges – no good.

The goal here is to determine the property value, and in order to do that, we have to compare apples to apples.

What Are You Really Looking for?

So how does this all come together and what are you looking for?

You’re looking for sold comps. You want to find properties that have recently sold, those that followed the BBBG Formula. You want properties that are in the same location as the property you’re interested in that have recently sold in the same condition as your chosen property. That's the key.

Don’t make the mistake of comparing apples to oranges or whatever your fruits of choice are. Always consider the conditions when it comes to comping properties. Period.

Stay tuned for my next lesson, where we’ll talk about how solds, actives and pending sales in a given area can actually impact your exit strategy. It’s gonna be good one. Don’t miss it!