digest
Short Summary
Main recommendation: when you comp a property for a value-add deal (flip, BRRRR, wholesale, or renovation for a rental), find comparable sales that match the subject property on five rules: distance, size, style, vintage, and recency of sale. The speaker says that because perfect comps are rare, especially in today's slow market, you should adjust comps for differences in bedrooms, bathrooms, pools, garages, and carports using price-tier dollar amounts.
Key Points
- The speaker defines value-add as buying a property that is not in its best condition or highest and best use, then renovating it so the increase in value exceeds renovation cost; the difference is profit.
- Comping is defined as the skill of determining a property's value and potential, estimating what it will sell for after planned upgrades.
- Rule 1, distance: ideally the same subdivision or neighborhood, without crossing major streets; the speaker rejects the common "anything within a mile" guideline, especially in urban or densely packed areas.
- Rules 2 through 5 cover size (square footage ideally within 200 sq ft, since price per square foot is higher for smaller homes), style (architectural and construction, e.g., ranch to ranch, brick to vinyl), vintage (ideally within five years of age), and sales from the last three to six months.
- When no perfect comp exists, use an imperfect one that meets most rules and adjust it for missing features using Jamil Damji's rules of thumb.
Details Worth Noting
- Concrete instructions:
- Find comps in the same subdivision or neighborhood, avoiding crossing major streets; do not rely on a one-mile radius in cities or dense suburbs.
- Match square footage of the house (not lot size) to within about 200 square feet.
- Match architectural style (e.g., ranch, Victorian) and construction style (e.g., brick vs. vinyl siding, flat vs. pitched roof, single vs. two story).
- Choose comps built within about five years of the subject property's age.
- Use only sales from roughly the last three to six months, because prices are changing quickly.
- If a comp meets four of five rules but differs on bedrooms, bathrooms, pool, garage, or carport, adjust its value:
- Homes under $500,000: extra bedroom about $10,000; bathroom $10,000; pool $10,000; garage $10,000; carport about $5,000.
- Homes over $500,000: bedroom about $20,000; bathroom $10,000; pool $20,000; garage $20,000; carport $10,000.
- Price per square foot can be used to price a home, but only when square footage is closely matched.
- The speaker notes that older construction is not automatically worse; some older properties have higher-quality materials than homes built during certain low-quality construction periods, so "newer is better" is not always true.
- The speaker argues properties needing value-add work are falling more in price than move-in-ready homes, which may create a larger spread for value-add deals.
Bottom Line
Accurate comps, matched on location, size, style, age, and recent sales, with price-tier adjustments for missing features, are the foundation for estimating after-repair value before committing to a value-add purchase.
