How to analyze real estate comps- Real Deals in Real Estate Wholesaling

What is going on, everybody? Benson, how you doing today? Good.

What's going on, brother?

And it's just another day where we're— another week. We're ready to get it, ready to crush the week. And I'm excited that you're on here with me, man. So if you guys are— if this is the first time you're tuning in, this is a call where we talk about all things real estate. And if you don't know who I am, I'm going to introduce myself really quick so you know if it's even worth listening to me. My name is Nathan Payne. I've done hundreds of deals, done millions of dollars in transactions, and I'm here to show you guys today how to analyze real estate comps, because that's a question I get asked a lot. And I got my awesome man Benson on here who's going to help me break it down. So Benson, who, who are you? Tell us who you are.

What's up, man? Uh, what's going on everybody? Benson Juarez. I am a real estate investor. I am the host of the REI Hacker podcast on YouTube. Please check that out. Uh, also one of the owners of Privy real estate investing software. Really cool data-driven software that helps real estate investors, wholesalers, hard money lenders, title companies, agents all across the board find, analyze, and track investment properties.

I love it. And that's a software service I use. And I like bringing you on here because, man, you're a wealth of knowledge, Benson. You've been doing this for how long?

Longer than you've been alive, buddy.

Yeah, maybe, right? Isn't— what is it, like 20 years? I'm not 20, but Yeah, just barely.

You were still in diapers.

I was in diapers. I was in pull-ups. I'll admit it. I was in pull-ups until I was pretty old. So, um, so guys, this is what we're doing today. And we have experienced real estate investing. We're going to be talking about how to analyze deals. So if you guys are asking that question when you're about to buy a property, look, I think this is a question that not just investors or wholesalers have. I think this is a question that everybody wants to know, right, Benson? Especially if you're like a family about to buy a house, you don't want to overpay for something. So how are you supposed to analyze real estate comps? So that's what we're going to be going over today. And my hope today is that from what we show you, you guys can go and take action because we don't want to just tell you how to, you know, how to do it and just talk about it. We want to show you, right? So you can take action and learn how to comp deals for yourself. So if you're watching this live, give us a like, hit the bell icon or subscribe, do all that good stuff. And if you're not watching it live and you're watching it later, yeah, just throw something in the comment section saying what's up. We love the network. We do read the comments. So, you know, uh, we, we do do deals all— I do deals all over the country. So maybe we can do a deal together depending on the market you're in. Maybe we can network. Um, all right, Benson, you ready to hop in?

Yeah, let's do it.

Okay, so let's just talk about the question: how to analyze real estate comps. That's been searched a lot online, and I've had that question a lot to me. But let's break down what that really means. So analyze real estate comps. Like, what, Benson, from your experience, what is a comp? What's a real estate comp?

It's honestly, in my mind, that question is weirded oddly.

It is, it is.

I agree, because you're really not analyzing the comps, you're using the comps to analyze the subject property.

That's right, right? Yeah.

Um, but this is the thing, this is the kind of the way that people are, is like they're not really quite sure. So If people are searching it that way, they might not find what they're looking for because really it should be, how do you use comps to analyze real estate, right? Yeah, right. And so comps is just a short word for comparable. Comparable meaning a house that's similar to the one you're analyzing.

That's right.

Bedrooms, similar bedrooms, similar square footage, all within a distance that's reasonable, typically within about a half a mile. And then you can use those past sales or other homes because they could be active or under contract comps as well to try to figure out what your house is worth.

So really you're saying that analyzing comps are pretty much kind of the same thing? You're, you're using the comps to analyze, right? So how do you use comps to understand what real estate is worth?

Absolutely. In this, in this case, it happens to be real estate, but comps is is just— it's a general word, right? That you use comps in life. Like, you can use comps, like, what's a comparable situation to what we're in to figure out what's going to happen in another situation, right?

Maybe like cars, right? Like, you have a car that you want to sell and you're like, well, what, what would mine sell for in this condition? Let me look at some others that have sold or that are for sale, right?

Yeah, you look at Kelley Blue Book or one of those sites, you know, Carfax or some of those other sites that are looking at like what past sales are, and they use those historical precedents to determine what's going to be happening today.

Exactly, exactly right. So that's what, what you're doing, everybody, is you're, you're comparing what other real estate has sold for near the property that you want to buy or is selling. Now, um, usually you want to use what they sold for versus what it's selling for, because anyone can throw a property up for sale for a price that is astronomically high or not going to sell for that price. So that's why you want to, um, you want to check sold data. But that can be difficult because in some non- nondisclosure states like Utah, I know Texas, there's a, there's, I think there's 11. They don't show you what homes sold for unless you're a real estate agent. You have access to the MLS. So you have to go by, if you don't have that access to the MLS, you're not an agent, you have to go by what's selling, right, to kind of get a good idea. And that's what I do a lot too when I don't have that data. But, um, that's, that's basically what you're doing, right, is you're just seeing, like you told us, What is stuff selling for? What did it sell for close to mine, right?

Yeah. And let's not forget that there's a different way of comping when you're talking about real estate investing versus just real estate in general. So like right now you're selling your house, right? Right. And so an agent would come in there and they would pull comps to figure out what the list price should be, but they're typically going to be using as-is comps. They're not going to use renovated houses to determine the value of your house unless yours has been renovated or it's been updated, right? So you want to use like properties, right? So there's, there's the car, there's the characteristics of the house, which is kind of the foundation. And then it's like, okay, am I trying to sell a house that hasn't been renovated, or I'm trying to sell a fix and flip, or am I trying to do a wholesale deal, right? And then at that point, after repair value is the most important piece of that equation.

It is. Yes, it is. So let's kind of break down a scenario so everybody that's watching this can kind of understand how this goes. So Let's say I'm talking to a seller, right, that wants to sell their home. And, and I'm a real estate investor. I'm looking to potentially wholesale it or buy and fix and flip it. And I'm talking to them and they say, hey, look, I looked at Zillow and I see that my house is worth $500,000, right? That's, that's what most sellers do is they just look at Zillow, Redfin, Realtor.com, and they get a general idea., right? So let's go to kind of the first place. I'm going to write down some of this down. So, uh, you got Zillow. Do you have any other ones that you can think of? I got— I usually just use Zillow, Realtor, and Redfin. Those are the ones that I get a good idea from, uh, that are just on online. Obviously you have Privy, you have other softwares that you can look at, um, the, uh— but these are the ones I would say that are just straight what sellers go straight to, right? And they they get a general idea, they maybe they add it together and then they get an average. But that's usually what sellers will say. They're like, well, I looked online and my house is worth $500,000, so I want $500,000. But if you buy for cash, I'll give you a little bit of a discount. I'll give you $495,000. I'll give you $5,000 off.

Right.

But the thing is, usually these— what these, these softwares are doing or these, these services is they're getting an average. Right, of what's selling in the area. And a lot of the times, if there's a lot of fix and flips in the area, it will kind of skew the numbers. So someone that has a bad house that's not updated, they'll be like, well, it says $500,000, but their house is in terrible condition. So that— their house really isn't worth that. So I run into that a lot, Benson. I have people that just look at Zillow.

Yeah.

Yeah.

Well, let's not forget, too, Zillow has this tool called the Zestimate.

There you go.

So Zestimate is the— is what's called an automated evaluation model, or AVM. I don't know if Realtor and Redfin both do that as well, but, um, it's basically— well, let's just talk about Zillow for a second. They're a billion-dollar company, and even they will tell you that their Zestimate is off a certain percentage in either direction, plus or minus, right? So For, for the average homeowner who's just out there just trying to get an idea of what their property's worth, it's fine, right? Because it isn't going to be a big deal. They're just trying to get an understanding what their house is worth. An agent who's going to list their house, they're going to actually go pull real comps from the MLS. They don't— agents won't use his estimate because they know it's unreliable, right? So if an agent won't use it, neither should wholesalers. Yeah. I mean, they should fix and flippers or other investor types because we know that those numbers are skewed and like literally sometimes we're talking about 8, 9, 10, 12% ROI. And if we— if the algorithm is already off that much, then essentially it's worthless.

Yeah, agreed.

So if you're investing, do not rely on an AVM, especially this estimate, because it doesn't take into account after repair value. It is mostly an average, like you said.

You know what's really interesting is I, I, uh, before I listed my house for sale, the Zillow estimate was $540,000. That's what it said it was worth. But I ran the comps, and so did my agent that we listed it with, and it was actually— the, the comps were looking like it was more like $650,000. So we changed it. We listed it for $650,000. Zillow, a couple days later after we listed the property, now has my property at $660,000 as the evaluation. So I don't know how that work— they're really just taking what people put, the data that puts on there, and they're just using their, their algorithm, right? So you really can't trust it. And if you're talking to a seller that is taking it for the gospel and they're saying, well, Zillow says this is what my house is worth, that's what it's worth— again, Zillow isn't able to walk your house to see the condition it's in, if you have new carpets, if you have— if you you know, if you've updated the kitchen in the last 10 years. So again, it's a quick estimate, right? But it is not the exact. So I love what you said. Do not— if you're a real estate investor, you're dealing with, you know, sometimes small margins when you're flipping a house. You do not want to go off the estimate. You want to go in, dive a little bit deeper, right, and to see what's sold and doing comparables. So now that we've talked about what most people do, how, how can you go a little bit deeper and find that information? We've talked about a little bit, but let's write it down. Benson, I know you said agents, right? So if you're an agent, you have access to the MLS. Can you explain to people what the MLS is?

Yeah, the MLS, it's an acronym. It stands for, um, Multiple Listing Service. So it is basically a database that will help real estate agents put a property for sale and allow other agents in that market to see it. That, that's the MLS, and it's kind of most basic form. It's, it's like just a database, a listing, um, where other agents can see it. Now that has grown and changed and evolved over time. Now it isn't just other agents can see it. Now they do what's called syndication, where if the seller approves it, the listing agent can check a box in the listing that says syndicate this to other sites. So push it out to Redfin, push it out to Zillow, push it out to other, you know, other sites that are out there that are open to syndication data pushes. And now they get more eyeballs, right? So most sellers do it. There's only a small percentage that don't, like people who are selling, like, you know, really expensive homes and they don't want the public to know that they're for sale. Yeah, most everybody does because it gets you the most eyeballs, and that's really what the agent's looking for.

Yeah, it's, it's the, the MLS is the best buyers list out there, like hands down. I know you can cultivate, you can work with your own buyers, but you can get in front of the most eyeballs if you put it on there. So, so if you use agents and if you use the MLS, you can get more data and more comps, right? So if you don't have a license or you don't have access to MLS, then the— what investors I feel like use if they're not using MLS is they, they go to softwares, right, within the industry of real estate investing. So you, you work with Privy and I'd say Privy has great data, buys what a property is worth. And that goes back to our question. Um, how to analyze real estate comps. Privy has an amazing tool that I use all the time to analyze, uh, real estate. So you want to talk a little bit about that tool while I pull it up?

Yeah, let me, let me just take that last example about what the MLS did one step further, because there's a critical point here where it, it evolved, right? It was a place just to list properties, but then what happened was Agents needed access to that data to be able to figure out what the next house that they're going to sell is worth. So they were required now by the National Association of Realtors to put sales data back into the MLS for comping. So when a house sells, they have to go back and say, okay, they switch the property from under contract, the status, to sold. So that tells everybody else that this property now sold, and then they put the price in there. That price is what agents use to determine comparables, right, as well as, as real estate, um, appraisers and some other, some other people have access to that. And so again, you have to be licensed to get access to that data directly from the MLS, but because now syndications is a thing, they're also updating those sold prices on sites like Redfin, Zillow, and realtor.com, which that wasn't a thing before. Only agents and appraisers had that.

Hmm. Interesting. So does that— how does that help, like, the average Joe that's not an agent? Does that just help them have more data to know what stuff is worth?

Was it just average Joe, a homeowner, or are they an investor?

Could be both. Homeowner. How does that help the homeowner having, like, what you just said, access to more data, like, through all these other syndications and these sites?

Well, if, if they didn't have access to, like, a Zillow or Redfin, then they'd have to rely on their agent to give them that information. Okay, now because it's on the internet, they can go and they can do their own little research and then they can look around. But well, let me tell you one thing, the MLS itself is not designed for comping. So as an agent, I go in there and I try to comp. It's manual. There's no algorithm, there's no automation, there's no automated valuation model in there. So it's a very manual process, which is why we built Privy over 10 years ago is because we were looking for a way of automating all the tedious tasks that we're doing every day to find, analyze, and track investment properties. That it was born out of the same problem, and it hasn't changed. That's still an issue.

Why, why don't you think they, they solve that problem? Do you, do you think they don't want to be, uh, liable for telling, like, telling people what it's worth off of a system, and they want people to do it manually, like, to really dive in?

Because it's It's really an— it's a skill and it's a— it's an art. Like, we talk— an AVM inside of the MLS would be just as bad as Zillow would be. So now the agent's going, right, they have the ability to walk the property, see what's wrong with it, see what condition it's in. So they have to take all that into consideration with the actual sales data and come up with the real price. That's why we pay agents, right? Yeah, they got to earn their money. Right. And so they do it by looking at using their own brains, right, their own eyeballs to look at the condition of the home and how old it is and deferred maintenance and taking that into consideration when looking at the actual sales data to come up with a real estimated value.

So, so let's talk about— you're right, it is a skill set because if we— if they would have just gone off in the, in the situation that my house was at where Zillow said it was before I listed it, it said it was worth $7— sorry, $540, right? But my agent, using the skill set you're talking about, was able to say, no, no, no, it's actually worth $650. And we put it for $650 and we got offers. We were under contract within a couple of days. Now imagine if I didn't hire an agent and I said, oh, this for sale by owner, I'll just throw it up for $540. I'd be really undercutting the value of what it was worth, right? So So it is— I would say a good agent is worth their weight in gold because I didn't think about $650K, right? But he had the knowledge to do that, right?

So anyway, yeah, really good point. So let's take it a step further, right? Which is the difference between pricing a house for sale that is not a fix and flip, that maybe is just in, you know, normal condition compared to what after repair value is. Okay. So as an investor, we're not looking at what a house is worth right now. We do, we do just to get an offer in, but we have to think about what will that house be worth after it's been fixed and flipped and sold. That's the driver in most strategies in real estate investing is what is it worth after it's renovated, right? So yes, you want to buy houses at a discount, but if you buy a house based off if it's as-is condition. You can pay asking price for a house and it could still be a deal as long as it's in the right neighborhood, right? It's, it's the, it's the, it's the flipped comps that will pull the value up and what creates the margins of an unrenovated house. So that's why you want to be around renovated, uh, you want to be in high investor activity areas because that's where your comps are at, right?

Or you're just kind of rolling the dice and hoping, you know, that you get lucky, especially if you don't have any other those comps that kind of support that, that your house is worth that right after you fix it, worth more.

So yeah, and if you're rolling the dice, you might find one fix-and-flipped house, but an appraiser is going to go in and they're going to take into consideration unrenovated houses if there's less investor activity data. So that's going to pull the value down of what an ARV could be in an area where there's low investor activity.

Very true. So let's dive into the tool that you said you use. You specifically built this to solve the problem of it being extremely tedious to analyze the deal. So let's dive into it. So it's called Privy. If you guys haven't heard— you haven't heard of it, it's called Privy. And actually going to show you guys on my screen right here. I'm going to share my screen so you guys can see how quick and easy it is. And again, I use this daily to comp deals and to check out what they're worth. So I'm going to go to Florida. We do a lot of deals in Florida and there's a lot of data. There as well because there's a lot of investor activity. So we're going to go to Orlando. So as you can see, Ben, do you want to explain what all these blue dots are?

Um, well, it depends on the filter you ran. I didn't see what filter you ran, but this is just the matches for whatever filter it is. Is this investor activity?

This is investor activity, I believe.

Okay, so if you click that button that said fix and flip, then it will show you where all the fix and flips are located.

There it is. Um, so yeah, deals and then fix and flip.

Okay, so you can click into that filter real quick. I just want to take a look at it. Okay, now you're doing fix and flip.

Yeah, there you go. 75%. You can drop it down if we need to. Active, single family attached, and run the search. So these are all the fix and flips that meet the criteria of the filter, correct?

Right. So they bought them at lower than 75% of the ARV, which is right around where most people are buying houses to be able to think that they're viable for a fix and flip deal. So you have— those are all the matches, right? So this is everything in the last 12 months. So it looks like there's 391 that happened in the last 12 months.

Perfect. Okay. And then obviously the closer I zoom in, it changes.

And then you'll actually get to see each individual property. So right just to the right of Orlando proper down there, then it saw that there was some fix and flip activity.

What do you think about this one? You want to take a look at this one? 249 Hastings Street. Can you see that? And no.

You don't see it? Oh, there we go. I see that one now.

Yep. So let's take a look at this. So this looks like a, um, a pretty good opportunity that it just found, right? And as you can see, it needs quite a bit of work. So the one thing that I love doing that's super fast and easy is you just scroll down to the comparables tab and it will find opportunities, um, you know, comparables that meet, that are pretty close to, uh, this property. And then you can see with the down arrow what someone had purchased the property for and what they resold it for. So $339,000, they bought it for $100K, they sold for $339,000. This is $249,000. So without like going really deep into it, you can say that someone, they're buying around $100K and selling for $339,000 homes that are comparable to this one. Is that right, Benson? Would you—

is that how you would read that? Kind of. What I would say is I would look at the— this price is— or this house is for sale for $249,000. Okay. And this fix and flip sold for $339,000. So in the percent ARV column, it means that that house that we're looking at on Hastings is at 74% of the ARV at asking price. That's without asking for a discount, right? So if I'm an investor and I'm going to do a rental property, then I might offer asking price. But if I'm flipping, I need to get it lower than 75% likely for it to make sense. Right. So if I need to get it at 65% of the ARV, then I would just multiply 65% times $339,000 and that would be my offer. Gotcha. But if I'm a landlord, is a 3/2 in an area where there's little lakes I'd go over to the rental comps and look at those and see what they're running out for. See the rental comps tab, right?

Yep. $2,115, $2,000. I'm looking at what the rents are going for. Looks like it ranges from like $1,500 to $2K a month for this area.

Okay, no, I'm not seeing it yet.

I see your mouse moving, but you have to click the rental Oh, I did. Maybe it's just taking some time for you to see it, but, uh—

oh, there he goes, it just popped up.

Yeah, it's just maybe it's lagging a little bit.

Okay. Yeah, so this would be a good area for a rental, and you know, you got a pretty good range here. Yeah. And so if I got this thing for a little bit less, then there's a good chance I could get close to that 1% rule.

That's true. Yeah, you know, the thing that I really like about, uh, looking at this is I can go to the one that was flipped at $339,000, and I can click on it, and and see what it looked like before and after to see what they did to it. You know, how updated they made it. A lot of the times it has a lot, like a lot more pictures to show you, but this one has the Google Street View, but it's totally fine because it shows you what they did to the property. Looks like they did a pretty good job. They got it $100,000. That's pretty deep. That's a pretty deep discount. $100,000 and sold it for $339,000. So this one must have been really, really jacked up.

And they got it direct from seller too.

That's something important to note because it says public record section there versus it has all the pictures. You would, you would know if it was sold on the market, right, on the MLS, if it had the data on it, like more. Yeah.

If there was an MLS ID underneath that, that Street View, then you'd know it was purchased from the MLS. But this one says public record, so you know they got it direct from seller.

Got it. Perfect. Now, this is— this would be a good buyer, right? Like, if you were able to get that property under contract and get it lower in the range where they usually buy properties, you could reach out to them and you could say, hey, would you be interested in buying a property that you just bought, that you just flipped? I saw that you flipped the one, it looks really great. I got a potential opportunity. But just looking at— just quickly, uh, just looking at the, the property we looked at at $249,000, I can just I believe obviously from the data we need to get it a lot lower for, for the buyer that bought this one to want it. But it's a good opportunity because you can see it needs, it needs work.

It needs work. It has investor activity in the area. We know there's demand there because it was a high investor activity location. And then it's just at this point, what do you need to write the offer on? And so if you do it, if you think $339,000 is the ARV because that was a flipped house, you just get— make your margins there, and that's how you submit an offer. But if that $339,000 wasn't there, if you scroll down again and we're just looking at this right here. Yeah, just look at other sales. Yeah.

Yeah. So we got $360,000, $340,000, $337,000. So you're getting a range of $337,000 to like $360,000 is the top. That's the highest one. And you can look at the pictures and it is a skill set because it's— you, you can go and look and you can see how well did they do. Does this have a pool? Does it have a garage? Like, what makes it better than the one I'm looking at, right? Um, yep.

Does it back to water? Like, in Orlando, there's a lot of lakes, a lot of little rivers and canals. So you have to make sure that if you're using— if your house is on the water, then you want to use comps that are on the water. If your house doesn't have that, then do your best to use comps that aren't on the water, but you can still use ones that are on the water, but you have to subtract out the value. The bump in value that it gets from being on the water.

Agreed. And you know, it's really interesting. You have to— when you're doing real estate investing, you really should understand your market very well instead of bouncing all over the country like I used to, because this area, for example, like right off of Glendale, like this could be like the coveted street. This could be like where everybody wants to live. And just across this main road, North Hastings, this area could probably not be as desirable for some reason, and you just don't know. So if you got something here and you're like, oh, well, and the data wasn't giving you what we're seeing right now, but you're like, oh no, the ARV is $339,000. Well, potentially it probably not because, you know, this is not as nice of an area as across the street, or it's on a main road and people don't like the traffic or the noise. So understanding your market is really important when you're doing this business, guys, because it can make or break a deal. I have an experience where one of my buddies— I grew up in East Cobb in Georgia, and there's a school system where like the top 3 schools like are really desirable. So the real estate is more. But like if you go across the block, just one, like one street, and you're in a different school system or zone, the houses aren't worth as much because the schools aren't as nice. So wholesalers don't know that a lot. And my friend gets deals and he flips, and he offered a lot more on this one property, won it. But it was worth a lot more. And the best— the wholesaler that had it just didn't know. So it is important to know your area because it can determine a lot on the value and what you can resell it for.

Yeah, really good point. And the other thing too, and we've been talking about it loosely, but this whole concept of doing adjustments. So real estate's very unique, right? Even if you have the the two properties that are the exact same. They're both 3-bedroom, 3-bath, and they're across the street from each other. Exact same square footage. They're both ranches. Well, one faces north and one faces south. Well, in Colorado, that makes a huge difference in which house— which direction the house faces, because if you have a house that has a lot of shade, that means you got snow way up until like April, right? And people don't like that, so they'll pay more for a house that faces the other direction. And so even with two houses the exact same in the same neighborhood across the street from each other can have a difference in value just simply because of the way the lot's oriented, if it has a view, um, if it is, um, you know, has something else that people value in that, in those areas. You really have to pay attention to what drives value, and then you have to adjust the values up or down so you get a more accurate comp value.

Yeah. And you know what's really, I find interesting is like once investors get a little bit more savvy is a lot of the time they'll look for additional ways to add value. Like, can you split the lot? Can you change the zoning? Can you do a flag? I can't remember the exact way they word it, but it's like a flag type of development where you can build a house on the front and then there you like make a little driveway and it goes to another house on the back. So I think they call it like, have you ever heard of that? It's like a flag type of—

There's an easement. And then an ADU, additional dwelling unit.

Yeah, I can't remember. It's something that I've seen a lot here in Utah. They like call it like a flag development, whatever, man. I don't know what I'm talking about. I don't develop stuff yet.

But yeah, I've never heard that flag term, but it's different everywhere, right? But the ADU part is, is pretty common, right? So additional dwelling unit, and people are building those in the back. In a lot of areas, they only do it where there's alleys. There's actually an alley already in the back there, and they're not building new roads, which is a way of doing it. But also too, like, um, like the whole house, house hacking, right? Pad split kind of scenario where you got multiple people living in one house and you're renting out by the room or by the bed. Yep. And you could take like a house that would only go for maybe $2,000 a month through traditional rental to like $4,000 a month.

I've never done the pad split, man. Have you tried that?

No, I haven't, but they're coming to Colorado here in the next couple of months. And so they presented at our meetup. Yeah, last time. And so there's a real opportunity there and just changing the way you look at the real estate asset and figuring out how you can monetize it.

Yeah. Like for me, I, me and my wife, when we got married, we bought a house that was bigger than we really needed and we had a basement we never really went into. So I just put us— we just put a kitchen, a kitchen downstairs and a separate entrance, and we've— we're renting it out for the last 5 years and didn't have to pay a mortgage because it covered our mortgage and more. So like there's a lot of different ways that they call mother-in-law basements or additional dwelling units. They can call that too. But yeah, there's a lot of different things you can do with real estate and it's really, really interesting. Like in markets like Toronto where I'm moving, like it's very expensive to buy homes. So there's a lot of people that are adding ADUs and adding more ways, like more rooms or ways to separate so people can afford to have, you know, that type of home so they can get more people in it. Right. They can have more family members come and live there so they can help pay the mortgage. I think that's what's going to happen as real estate gets more expensive. People are just going to have to find a way to be able to afford it by getting more people to live there. Right. If they paid the mortgage together. I know, I know a lot of like families do that and multigenerational families do that. Yep.

So yeah, there's a big affordability issue right now with housing. So this pad split criteria is going to become ever more popular. The governor of Colorado just changed the laws in the state to allow more than a certain number of people to live in the same house who are unrelated, and it was, it was illegal before recently, really. So it's becoming so kind of streamlined and like more acceptable to government that they're changing the laws to allow it.

That's interesting. Wow. Well, that actually brings— I have a question that you might be able to help me answer. I don't have the answer to it, but do you mind if I ask you? It's outside of like what we're talking about, but I figured it kind of goes along with what we're talking about. So I have a buddy I was talking to. He bought an Airbnb here in Utah and it wasn't— it's not performing that well. So he's trying to get out of it. He got it licensed with the city so he could do the Airbnb, right? But now he's trying to sell it as an Airbnb with the licensing and the, the— I think it's the county or the city. They're saying, look, you, you can't sell this with the licensing because if you sell it, then that person that's buying it, like, they don't— they're not a part of your business. So you can't sell this as a potential Airbnb that's already licensed because someone's going to have to go through that process again and we might not let them have it. So I was telling him, I was like, man, that's, that's not fair. Maybe you could just sell the, the property as like sell the LLC itself, the business with the property inside it. And he was saying something like the business with the county or the city would stop that or they would say that's not cool. And I was like, well, maybe you sell it on a contract for deed and you stay on as the owner. And then once they completely buy you out, you like the deed transfers. I don't know. I was just thinking, hey, there's got to be a way that he can do that. So because he said that because he wasn't able to sell it with the licensing as it being already approved, he had to drop the price $50,000. And I was like, man, that sucks. There's got to be a way. So I don't know if that makes sense what I just asked you, but I'm just trying to see if there's a way to help my buddy.

He might be able to separate them, right? So sell— it's like a package deal. So sell the real estate. As is, and then you sell, you sell the LLC separately from the real estate. But there, there's another agreement that includes both, but that doesn't get recorded at the county, right? So they could put a contract together with agreement to sell the house and an agreement for the, the LLC, which owns the, the license, right? The LLC does, probably. Or is it him?

That would be an important I think it's the LLC, but if it is the LLC, then he could just make whoever buys it like a member of the LLC, right? Like, or, well, eventually sell it to them, right?

So they could own it, um, and then he would remove himself as a member to the LLC after the fact, and none of that gets recorded anywhere. Um, yeah, that might be a way around it. Yeah, because I'm surprised that the, the county or the city is so interested in how he wants to do business. Like, it's none of their right business.

Yeah, that's what I found it so interesting. It's like, how would they know? Or how are they going to be so meticulous that when you sell this, they're going to say, okay, nope, next person that owns it is not going to be able to get approved to have this be like approved by the city, this Airbnb. So I know there's got to be a way around it. Um, and I put them in contact with my title company that like does a lot of these transactions. So I feel like they'll be able to help, but I'll tell them about what we talked about. But guys, the reason why I'm asking Benson about this is because just the fact that that property is an Airbnb, right, that's currently licensed and is approved does make it more valuable. And because he's trying to sell and they're saying no, he has to drop it by $50K. So there's going to be situations where maybe someone's trying to sell something and they think it's worth more, but they're, you know, according to certain situation, might not be. So you need to understand as you're buying things to be aware that maybe things are worth more or not worth as much as you think they are, right? Which, yeah, you need an expert to look at stuff.

So to help you out, I would say something about that too. Like, if you find a way to get creative with a property and make it more valuable, don't let that be what you make your offer on. Like, always underwrite a property and pull comps based off the worst-case scenario. Of course, this is what a lot of people who did Airbnb were doing., and they got screwed because they were writing offers based off of what the rents were based off of an Airbnb scenario, and they would get into it and then realize it wasn't performing, almost like your buddy's in, unfortunately. And then they could switch it over to a traditional rental, but then it wouldn't cash flow. Yeah. And so now you, you underwrote it from the highest level. You should be underwriting from the worst-case scenario in case Scenario A doesn't work out.

Yeah. And I would say same, same thing for flippers. I know a lot of flippers sometimes, like if they're newer, they'll look at like best-case scenario, like, oh, it needs carpet, paint, maybe a little bit of the kitchen. This will only be a $25K rehab. The flippers that I work with have been doing this for a long, long time. They go worst-case scenario. They say, you know, if everything works out, worst-case scenario, it'll probably be like $90,000. So I'm going to say like $95,000. That's the rehab, right? And if they, if they don't have to pay that much, they win. They really win. And if they do, then they still have some buffer. But when you go and you don't really give yourself room, you're potentially putting yourself in a bad spot, right?

Yeah. There's a term in the fix and flip world called contingency, right? So you have your contingency, which is, you know, 5% typically for an experienced investor on costs, like the cost of doing the construction. But some of these guys go up to 10% and they underwrite off of that, and then they write an offer that is, you know, takes into consideration that you might have an increase in costs, you might not get to sell it for what you want to sell it for in the back end, maybe comps adjust or the stock market has a hit and so everything gets stagnated. So it's just, it's just a good strategy to have a contingency.

Yeah. And I think this goes into every strategy. I feel like whether you're fix and flip, Airbnb, I know in rentals a lot of people, they're like, well, if it cash flows like $100, I'm good. Or if it breaks even, it's like, well, no, hold on. You got to take into account vacancy. You got to take into account like issues with the property maintenance. And a lot of people don't put that buffer so they think they're cash flowing, or one bad tenant that's vacant, you got to fix up the property, like you're negative. So I always joke around that the book Rich Dad Poor Dad, it probably has lost people more money than it's made for people because a lot of people get into the business and they're like, oh, I just need to find something and I'll cash flow. But they don't. They get in there and they're not aware of all the things that that could happen, unfortunately. I don't know if you've seen that, Benson, but I've seen that a lot.

Oh yeah, I've experienced it. I haven't just seen it.

I've done it. Yeah. You're like, oh, you know, I really want this. This is a nice property. And then, you know, things happen. Tenants get crazy and they do. They can get crazy. So make sure you give yourself a— what would you say is a good buffer, like on cash flow? Like at least $400 a month that you like.

Would you say that you have a buffer between I don't know if you have a role. It all depends, right? Because you think about the mortgage, right? If you got a $30,000 mortgage, then, you know, $400 is not covering anything. That's true. Um, but if it's, you know, if it's a house that's like a standard 3/2 in Middle America, then that's really good actually. But I think it's on a case-by-case.

It really, really does. Yeah. Yeah, I know some people play it tight though, right?

They do. They do.

Optimists out there. That's right, that's right. Well, hey Benson, I think we've really crushed this topic. We've dived in deep into how to analyze real estate comps. Um, I hope it was helpful for everybody that watched. Benson, thanks so much for coming on here with me. I had fun chatting with you about real estate. And, um, you know, hopefully you guys can take this information, go check out Privy if you don't— if you don't have it yet, you can use the, the code PAINLESS. It's right there, P-A-Y-N-E-S-S. P-A-Y-N-E-L-E-S-S, Painless. Um, that it'll get you a discount on your first month. Isn't, isn't the promo that you guys are running, uh, for on the coast?

First month.

Um, if you're on—

if you go to the annual plan, you'll get even deeper than that. I don't know what yours is.

I think it's a discount on the first month, and then there's one on the annual too. Okay, and, and on the annual, right? If you sign up, you get a discount. So check it out, guys. Um, I use it in my own business. It's It's very helpful when you're looking at comps and a lot of other things, finding deals, whatnot. So Benson, you got anything you would like to say before we take off today? No, no.

Just take what we were talking about today, but don't let it scare you. Like, really, the only way you make any money in real estate investing is if you take action. And if you have analysis paralysis because of comping and you don't pull the trigger or you get delayed or you procrastinate, like, you're going to miss out on deals. So even if you don't have a deal today, practice comping. Practice it. Take a random property and be like, what would that house be worth if it was fixed and flipped and sold? And get those reps in. Practice it. Make it part of your craft, your art, because then when that deal does cross your table and you've, you've already gone through the wringer and you understand the neighborhoods and you understand investor activity and you know where, you know, the market are as far as fix and flips and what people are doing, you'd be way better prepared and then you'll be confident in your numbers and then you'll take action when it's very necessary.

I love it. And that's why at painlessflipping.com, that's what we do is we help people get started. So if you feel a little hesitant, but you're like, man, I really want to be— I really want to get into real estate, check it out. That's what we do. We can even help you if you got a deal you're looking at that where you're talking to a seller and you're like, I just don't know where to take it. Check it out. Uh, painlessflipping.com will help you. We'll kind of give you a little guidance on what to do with it. It. So, all right, thanks everybody. We'll see you next week. Benson, we do this every—

see you later, everybody.

All right, bye everyone. Bye.