8 Factors I ALWAYS Consider When Comping...

Hey guys, it’s Rob Swanson. I’m kind of newbie here at Mogul, so if you have no idea who the heck I am, feel free to check out my previous awesome training calls, Blitz Wholesaling: How to Find and Exploit the ‘Easy Profit’ Cities, Rehabbing Houses in 17 Simple Steps and The Entrepreneur’s Income Trap.

Now, in today’s lesson, I'm going to teach you the basics of figuring out the value of a house and how you comp that house properly so you can really compare apples to apples. Most investors make the mistake of comparing apples to oranges. Sometimes, apples to pears. Some will even compare apples to bananas, which are absolutely nothing alike.

So to get there, we're going to look at 8 different factors that go into comparing one property to another.

But first…

Let me introduce myself for those of you who aren’t familiar with me.

Hi, Folks, I’m Rob

I’m a real estate investor and educator as well as being an expert in wholesaling, structuring deals, raising money and teaching real estate investors. As the President and CEO of The RMS Companies, I oversee the purchases, renovations and liquidation of residential real estate.

I’ve been a full-time rehabber, wholesaler and landlord for 12+ years now. I’ve done practically every kind of deal you can think of multiple times… flipped hundreds and hundreds of houses in 14 different states and 26 different cities.

I’m a little nuts about having EVERYTHING systematized. Guess that's what happens when an engineering graduate turns into a real estate investor. I think I can credit a majority of my success to this obsession, though.

Okay, enough about me. Let’s get to the reason we’re all here. To learn something valuable in this lesson…

The Factors of Comps

apple So, these are the 8 factors I take into account to make sure I am comparing apples to apples – a.k.a. to make sure I’m using true comparison). But first, let’s touch on something obvious but worth mentioning before we dine in:

Location, Location, Location

Now, most of us already know this general rule about real estate comparables. You always start with location. You’ve heard the old adage that real estate is all about location, location, location. The same applies when you're trying to figure out the value of a house. You have to start by location. So what we're going to assume is that the houses you're comparing are in the general same location, okay?

Now, I want to introduce you to something that I call the BBBG Formula, which is an acronym for the next 4 factors to consider. And here's how it goes:

Factor #1: “B” is for Bedrooms

The first “B” in BBBG stands for bedrooms. You want to compare the future fixed-up value of the property or the rental comparison analysis of a property based on the number of bedrooms.

You want to compare two bedrooms to two bedrooms, three bedrooms to three bedrooms, etc. If you want to compare a two bedroom to a three bedroom, you have to make some appropriate adjustments.

Factor #2: “B” is for Bathrooms

The second “B” in BBBG is for bathrooms. You want to compare two bedroom, one bath houses to two bedroom, one bath houses; three bedroom, two bath houses to three bedroom, two bath houses.

Because every time you go up or down in bedrooms or up or down in bathrooms, your price goes up and down a little bit.

Factor #3: “B” is for Basements

The last “B” stands for basements. Now, in some parts of the country, there aren't basements. Then, this rule just goes away. But if you're in an area where there are basements, you want to ask yourself:

Does the house have a basement or not?

If so, then…

Is it a full or partial basement?

And also…

Is it finished or unfinished?

Factor #4: “G” is for Garage

Okay, so the last letter, “G,” stands for garages. Does the property have a garage? Does it have a carport? Is the garage attached or detached? Or, is there just on- or off-street parking?

These are the questions that you want to ask when it comes to garage.

Factor #5: Square Footage

And now we have square footage. So, factors 1 through 4 get us in the ballpark… then we start to make adjustments based on square footage – and we start cutting certain properties out.

How big is the house? Are we comparing a-1,100-square-foot house to a 1,800-square-foot house? 1,110 to a 400-square-foot house? We have to be within a reasonable range to compare square footage.

Generally, I like to be plus or minus 10% on square foot. So we cut the properties out that don't come close enough to a match in square footage.

Factor #6: Style

Now it’s time to talk about style. Are we talking about a ranch house? A rambler house? A tri-story, a tri-level, a two-story?

What type of house are we comparing? We don't want to compare apples and oranges. We want to compare apples to apples. So we cut the properties out that don't match style.

Factor #7: Construction

We want to compare brick houses to brick houses, stick-built houses with siding to stick-built houses with siding; 2x4’s with stucco to the same thing.

There are big differences in the construction type that the house was built with. So when you're comparing one house apple to apple, you want to cut the construction types that don't match.

Factor #8: Age

Lastly, you want to get down to age. The BBBG Formula: Bedrooms, Bathrooms, Basements, Garage gets you in the ballpark. And then you start cutting the different properties that don't match in their square footage, style and construction, so you can truly compare apples to apples.

fruit When you get down to age, in some parts of the country you're going to find properties built in the 1800s and early 1900s. You're also going to find properties built in the ‘40s and ‘50s. The big cutoff is around 1978, because that's when the U.S. eliminated the use of asbestos materials in residential construction. It became illegal.

What you're looking for when it comes to age is more about common sense...

If you see a bunch of properties in an area that are from the 1920s, and your property is from 1982, you want to be thinking, "Should I be comparing 1920s houses to a 1982 house?"

So that covers my BBBG Formula for comps...

Stay tuned because next time, we’re going to dive deeper into more specific conditions you should consider when comparing comps to come up with the most accurate value.