Valuing Property Remotely (part 1)

Hello everyone, this is Bill Flood, and welcome to another edition of the Coast to Coast Real Estate Investor. Thanks for joining me on the journey as we learn about real estate investing across the country

Today, I want to talk about a subject that is near and dear to most investor’s hearts. I probably get more questions about this subject of determining property values than nearly any other. It really is a vital, important subject, but at the same time, isn't really rocket science. There are a few well-utilized procedures that will make the process simple.

I’ll also note that while investors need to know value and make their purchases accordingly, accurately predicting a property’s value is much more important to a flipper than someone holding over the long term. It's much like a stock investor not needing to be as concerned with the "perfect" entry point as much as a day trader would need to be.

Make no bones about it – no investor should be buying at retail value…or worse, above retail value, but if you are flipping a property you are concerned about margins, and that makes a property’s value far more immediately important than the person who is controlling a real estate asset for 10 or 15 years or even more.

Value is Everything

With that in mind, your mantra should be that “value is everything.” I love Robert Allen’s statement from his book, The Challenge (my personal favorite by the way), “until you know value, everything is worthless….once you know value, everything is valuable”
What he is saying, in effect, is that until you know value, you stand to either overlook potential deals, or make big financial mistakes. Once you understand values, you are in a position to recognize deals, and to turn your back on those that aren’t worth pursuing – because you know value!!

Condition, of course, effects value, and you can’t overlook that. A $100,000 price in a $120,000 neighborhood is not a bargain if the house needs $25,000 worth of work. It’s always best to see a property face-to-face, but if you don’t do that, you need to invest some money in things like home inspections, appraisals, and contractor’s estimates for performing any rehab. Plus, you'd better have a lot of faith in your real estate agent's opinions about condition and appeal. Personally, this goes to the heart of what I was talking about in the last edition - how a good agent is worth their weight in gold, and you should take your time in finding the right one.

Working the Farm

With that in mind, let’s begin with the ultimate value-determining method, and that is called “farming.” Working a farm simply refers to becoming so familiar with an area, or neighborhood, that you are as much as expert in property values there as anyone. If you study a farm long enough, you will be as accurate as any appraiser....perhaps even more so because you know what things are really selling for as opposed to their potential value.

So, you can see, here lays the problem with hop-scotching all over the place chasing deals, and not having some kind of focused attention geographically. You never really get to know values. When you work a farm, you know what the inventory is, what sells, at what price, what’s sitting, what the condition of the various properties are, what’s sold and how quickly, and what’s coming on the market.

I began much of my investing career when I lived in a very large planned, golf course community near Richmond Virginia. I used to spend my weekends driving that community and a couple of neighboring ones. I knew, probably within about $2,000 what a house would be listed for, and what it would sell for. I knew what was for sale, what kind of shape it was in, if it was a foreclosure, or vacant, how long it had been on the market….in short, I was a local expert, and could ascertain the value as good as any real estate agent or appraiser. I just knew, and that came from studying the area.

So, let’s say your searching has led you to an area of condos in Florida that appeal to you. In that case, do your farming with those condos within that basic area. Be very systematic about it – get to know everything you can about pricing, value, market conditions, rental rates, etc. Become the resident expert, and don’t jump around looking in that Florida community one minute, another Florida city, the next, and then chasing after something in Atlanta the next day. You need to be more focused than that.

In the next addition I am going to introduce several more strategies and tools. As I move down the road, my objective is to give you a concise set of tools you can use to determine values to a very close degree, even if you've never been in the area. So, keep a watchful eye out for the coming segments.

Until next week, I’m Bill Flood; this is the Coast to Coast Real Estate Investor…live your real estate dreams!