Tim Bell property analysis 2

Now the next thing we want to talk about in our formula, we're going to start back at the top and we're going to go to our. We're going to. This of course is the fix and flip investors formula. Okay? That's this formula. That's the basis of the wholesalers formula. So you can see we start with the after repair value, which as is defined as how much will that property generate once the fix and flip investor gets it all fixed up? So once they've got it fixed up, how much will they be able to sell it for? Okay, the definition of after repair value is very simply what price will cause a buyer to walk into your property after you've fixed it up, look around and say, I want to buy your house. Here's how much I'll pay for it. Where's the contract? Where's the pen? Here's my earnest money. Let's go. That's the only number that means anything in terms of after repair value. You have to understand that you're going to be exposed to lots of different valuation terminology in the marketplace. You're going to hear things like market value and fair market value and assessed value and appraised value and tax value and parcel value and blah blah, blah. You're going to hear all this valuation terminology. There's only two values in my opinion that mean anything to you. Number one is the after repair value. How much is that property worth once it's all fixed up? And number two is your maximum purchase price based on that after repair value. Subtracting some things in our formula, how much is that property worth to me as the type of investor I'm going to be on this particular transaction, either a wholesaler, a fix and flip investor, or a buy and hold investor. Okay, how much is it worth to me based on my formula? Those are the only two valuation numbers that mean anything to you in my opinion. Again, what is the after repair value? What is the sales price after it's all fixed up? What will it actually sell for in the marketplace and how much should I pay for it such that it represents and is a good deal for me? Okay, Those are the only two numbers that I really care about in terms of valuation. Okay, so let's start with the fix and flip investors formula because that is the basis of our wholesale formula. And let's move to each component in the formula. Okay, so let's start with the after repair value. Now, the after repair value. And by the way, we will discuss the buy and hold formula also after we finish this discussion. Okay? All right. So the after repair value, again, there are several different components, several different items that we use to help us determine after repair value. Remember, after repair value is based on comparable property. Sometimes you'll hear it abbreviated as comps. Okay? You'll hear real estate agents and other real estate professionals call them comps. Appraisers, different people call them comps. What they mean is comparable properties. Now, comparable properties are by definition properties that are as much alike and as much like my property that I'm trying to determine the value on as possible. Okay? Understand that the concept of comps is flawed at its core. Why? Because it presumes that any two properties can be identical. The truth is, no two properties are identical. Why? Because they occupy a different address, a different location, they occupy different space. So by definition, there are no two properties that are identical. But the idea of comps, or the method that we use that involves comparable properties, presumes that properties are as close to one another as possible in terms of amenities, location, and condition. And it also presumes that history will repeat itself. Does history always repeat itself? Maybe, but sometimes it doesn't. But the idea of comps allows us to figure out what it most likely will be. Now, unfortunately, comps are not an exact science. They're a little bit of numbers and a little bit of science and a little bit of art, a little bit of emotion. Okay? They're all kind of rolled up in there together. Even though the core concept of comps is flawed, the fact that two properties are. Assuming that two properties are identical and they can't be by definition, and assuming that history repeats itself, which it doesn't always, comps are the method that we use because that's really all we have. And that's what we use for residential properties, single family homes, things like that. Okay, so let's talk about the nature of these comps. We want properties that are a similar year built, okay? The further back you go, the less likely the difference there is to be a big difference in the value based on the age. And the more recently you go where the less likely there is to be a difference in the age. For example, in most places, there isn't much difference between a house that was built in 1906 and a house that was built in 1926. Okay? They used similar materials. They used similar labor techniques and practices. Technology didn't change very much. In terms of houses from 1906 to 1926, those houses are very similar. Now, we fast forward houses that were built in 1996 versus houses that were built in 2016. Is there a difference between those houses? Yeah, there is. Okay. Technology, materials, labor techniques, and various different things have changed dramatically just in that short 20 year period. As a consequence, the newer the house is, the more difference the age makes. The more the difference in age makes a difference. The further back you go, the less likely that difference is to be important.