What is Important When Evaluating Value Add Deals in Real Estate?
When conducting value add strategies what are the three most important aspects of your potential deal?
There are many important factors in any deal. But there are three that are crucial to your success.
- People skills is always number one!
- After repair value.
- Total repair costs.
Whether you are fixing and flipping, BRRRR’ing or just looking to add value to a long term hold to access a HELOC, the key aspects are people skills, determining your ARV, and knowing how much your repairs will cost you.
I see too often where these aspects are far from accurate.
Any investor needs proficiency in all these aspects in order for success to happen.
There are factors that alter your evaluation process if you are considering a residential investment versus a commercial investment.
With a residential investment, your comparables are always the basis of how you’ll equate current or future value. Also keep in mind, that not matter how much income the property can potentially accumulate, if it is residential, the value of the property will still be based upon comparables.
- Comparables are comparable properties in a specific area that you’re looking to buy or sell in. ‘Comps’ are used to determine the value of a home by comparing it to similar properties sold in the same neighborhood or in an area as close as possible to the house being valued.
Repair estimates take a lot more research and practice to understand compared to evaluating your ARV.
This is usually where the divide usually occurs amongst those that are vested and devoted to learn (to provide a better customer experience) and those who aren’t.
Regardless of how the accuracy is delivered, it needs to matter to you. Some will have specialists they’ll hire and some will learn on their own.
- To get a better perspective of how to evaluate your potential ARV and repairs, see our previous article How to Calculate the ARV & Repairs.
A key component that will also dictate the demand of your potential investment is the school district. Don’t leave this crucial aspect of your evaluation out.
If you are a wholesaler or a realtor catering to investors, it is vital to your long-term creditability that you acquire the knowledge to deliver all aspects covered in today’s article.
Often, these aspects are so far from accurate that it affects the ability to build relationships or recover from a terribly inaccurate experience.
If the potential deal is a commercial property, the income dictates the value of the property.
Depending on the history of sales in the prospective purchase area, a capitalization rate can also dictate value. If there are not enough historic sales to align to a sales trend, then the purchase price is best determined by the investor and what makes sense for them.
Your will see within both residential and commercial investments that asset class has significant influence on cap rates as well.
The factors involved in understanding location, cap rates and simply evaluating rental property can be resourced here in these three articles.
- Understanding Location, Location, Location
- Understanding Cap Rates
- 5 Ways to Evaluate Rental Property
It it well known that the appraisal will dictate the final values of your project.
Unless are are purchasing with liquid cash, you will have an expectation to come as close as possible to what the appraiser will come up with.
Ultimately, what the appraiser confirms is what the bank will use.
Any variance in value that is under what the appraiser determines, will be an amount you will need to account for in cash at closing.
So what does that tell you? – You need to be as close as possible to what an appraiser may be thinking for any prospective deal.
- To help you better prepare for these factors, see our previous article Close More Deals With Less Money!
Regardless of the property type and investment strategy, the appraised value is very important.
If you want to save money, your knowledge of appraisal techniques will be very helpful.
In regards to the people skills aspect, this is a skill acquired over years of self-development.
We have several articles supporting this aspect as well. Start with the articles below to help you develop better people skills and knowledge of your customer.
- How Much of Your Business is Mindset?
- How Do I Get to the Money?
- The Secrets to Building Rapport
- Ownership, Education & Due Diligence in Real Estate
- Achieving Trust & Building Relationships
- Real Estate Customer Service Skills
- Leading with Positive
There are plenty more, so use our Business Development Page for more articles like these.
We cannot leave this article without providing sources that are not on our Free Resources Page to help you evaluate deals mathematically with a calculator tool.
See many Microsoft Excel based calculators in our Shop or directly through the links below, based upon your needs.
- House Flipping Investment Calculator – YouTube Tutorial
- Rental Property Investment Calculator – YouTube Tutorial
- BRRRR Investment Calculator – YouTube Tutorial
- ARV Investment Calculator – YouTube Tutorial
- CapEx Investment Calculator – YouTube Tutorial
- Construction Investment Calculator – YouTube Tutorial
Thanks for joining us today faithful readers – future leaders.
We hope this article has been helpful for you.
Love ya and continue to strive for growth.
Please comment your feedback on aspects you have used to be successful.
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