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When it comes to flipping properties, a crucial step in the process is conducting thorough property comparisons, or "comps." By analyzing various factors, such as tax records, construction details, lot size and zoning, street view, sidewalks, and multiple sets of comps, you can make informed decisions and maximize the value of your real estate investments. In this article, we will guide you through each of these important components to help you master the art of property comps for successful house flipping.
1. Tax Records and Buildable Square Footage:
Tax records provide valuable insights into the specifications of a property. By examining the finished and unfinished square footage, along with the current bedroom and bathroom counts, you can determine the buildable potential. For example, imagine a house with a thousand square feet upstairs, two bedrooms, and one bathroom, and an additional thousand square feet in the basement. In this case, the existing layout may not be a concern because there is 2,000 square feet available for customization. With the right construction plan, you can transform the property into a four-bedroom, three-bathroom layout or even more. Therefore, always pull the tax record to understand the shell of the property and its buildable square footage.
2. Construction Considerations:
Another crucial aspect is understanding the construction details. The year the property was built provides insights into the necessary construction approach, required upgrades, and potential challenges. For instance, if a property was built in the 1920s, you can expect it to require extensive seismic upgrades due to older wood and different framing techniques. These considerations significantly impact your project timeline, potentially adding three to six months. Understanding the construction era also helps in underwriting the deal accurately, including analyzing the architectural style, such as daylight basements, two-story structures, or ramblers.
3. Lot Size and Zoning:
Assessing the lot size and zoning regulations is vital for uncovering hidden value within the property. Beyond simple remodels, understanding the topography of the lot and the specific zoning regulations is key to maximizing your investment. In some cases, you may discover opportunities to build additional units, subdivide the lot, or take advantage of an oversized lot in a high-demand metro area. Even during a pandemic, oversized lots often command a premium, as people seek staycation options. Analyzing lot size and zoning allows you to tap into these hidden values and make well-informed decisions.
4. Street View and Neighborhood Assessment:
Utilizing street view tools becomes invaluable during property comps. Analyzing the surrounding streets provides insight into value variations within subdivisions or larger cities. One street over can make a significant difference, with values varying by 20% or more. Furthermore, consider the condition of the street, the presence of sidewalks, and the overall neighborhood appeal. A poorly maintained street or unfavorable neighbors can impact the resale value, potentially reducing it by 5% to 10%. Evaluating the street view helps gauge the livability and desirability of the property.
5. Sidewalks and Utilities:
Sidewalks offer more than just a pleasant streetscape—they provide clues about utility availability and potential for additional development. Assessing the presence of sidewalks helps determine the ease of adding extra units or modifying the property. If utilities are not conveniently located, bringing in additional units may become prohibitively expensive. These seemingly minor details gleaned from Google street view can result in significant value swings of 10% to 20%. Thus, carefully considering sidewalks and utilities during comps is essential.
6. Three Sets of Comps:
Pull three sets of comps for each property to ensure a comprehensive assessment. First, analyze comps based solely on the unfinished space, without factoring in any potential additions to the basement.
Second, evaluate the highest and best use of the property, considering the maximum total square footage and potential for development. This approach provides a comprehensive value assessment. Lastly, identify the hidden gold in the property by exploring opportunities for additional dwelling units or other unique possibilities. By evaluating these three sets of comps, you can make informed decisions aligned with your project goals.
Mastering property comps is an essential skill for successful house flipping. By leveraging tax records, construction details, lot size and zoning information, street view assessments, and thorough comp comparisons, you can uncover hidden value, accurately underwrite deals, and maximize your return on investment. By following these steps, you'll gain a competitive edge in the real estate market and increase your chances of success in the world of house flipping.
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