Powerful Lessons to Assure Your Success in Real Estate I

Lesson One:

Is Your Price Right?

Appraising the house you're buying is key to your profitability. Paying for a professional appraisal can get very expensive when you're trying to sort through multiple deals to find your nuggets. Comparing apples with oranges is the most common mistake investors make in evaluating their potential investments.Here's a list of helpful tips on how to prevent mistakes and arrive at the right price (value.) When I use the word comp, I mean a "comparable house" used to determine the value of your house.

  1. Never compare a 3+2 house with a 2+1 regardless of the similarity in the building's sq ft size.A 3+2 is more popular and thus takes a lot less time to sell. Buyers are also willing to pay more for 3+2 than the same size 2+1 or even 2+2. Longer market time means money out of your pocket.
  2. Always compare similar lot sizes regardless of the similarity in the building sizes.  In other words, if you're buying a 1600 sq ft house with a 4000 sq ft lot, all your comps must also reflect similar lot sizes no matter the size of the house itself. Remember, when we say that real estate appreciates, we always refer to the land under the building that goes up in value. No building will ever appreciates in and of itself.
  3. Never compare a house that suffers from economic obsolescence with one that is free of it. Here are some examples of economic obsolescence.
    1. The house is on a main street or on the flight path or next to commercial/industrial properties or power lines or at a busy corner with heavy traffic at certain hours of the day.
    2. A house with functional obsolescence needs to be compared with like properties. Examples of functional obsolescence are: poor curb appeal, bad layout (floor plan), 4BR +1 bath.........Unless you can remedy the functional obsolescence during your rehab process, this value of such property is never the same as a comp with a very functional floor plan.
  4. Properties in superior locations are more valuable.Be sure to compare your house with comps in the same geographical location, with all other factors being equal.Examples are being on the same side a famous blvd. or street that divides the superior from the inferior. In the San Fernando Valley, being north of the Ventura blvd. is not nearly as good as being on the south side.In Santa Monica, being north of Montana Ave. means getting $200-300 more per sq. ft. than being on the south side and so on. The other factor is using comps in the same city no matter the proximity. An example is using a comp in Encino for your house in Tarzana.Although they're neighboring cities, Encino houses are more expensive than Tarzana ones with the same amenities.

In a nutshell, to get the right price for you house requires careful observation and proper evaluation of all factors. If you miss any of them, you might end up losing a lot of money.


Posted in  Blog, Education, Real Estate, Sam's Real Estate Club

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