If you are new to wholesaling, it is likely that you’re still on the lookout for the right way to do comping. It is also highly likely that you’ve come across the blanket rule for comping, the ARV x 70% – repairs rule. In today’s show, Lauren Hardy sets the record straight on this blanket rule. If you want to comp a property correctly, you can’t afford to miss today’s truly interesting episode. Rest assured, you’ll look at comping from a totally different perspective after tuning in. Lastly, if you want to find more deals and make more money, this is one episode you just can’t miss!
- What happens if you follow the conventional comping rules
- Software that helps analyze offer pricing
- How to support the narrative of the range
- What you can do to avoid analysis paralysis
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Hey, what’s up everybody. This is Lauren Hardy, and you are listening to the Wholesaling Inc podcast, the number one podcast on all things wholesaling. Today, I am going to ruffle some feathers. I am going to teach you all why your method of offer pricing and copying out homes and coming out with a price to offer a seller is wrong. You have been taught the wrong way, at least a lot of you guys have. I see a rule floating around and it drives me nuts. And the reason this drives me insane is because I followed this rule, this blanket rule for a couple years. And let me tell you, if I’d known what I know today and what I’m going to tell you today on this episode, if I knew this earlier, I would be a lot richer, I would have done a lot more deals. The rule I’m talking about is the ARV times 70% minus repairs.
I’m going to tell you why this rule is dumb, so keep listening. I got inspired to do a solo rip on this subject because I saw this image on Instagram floating around and I looked at it and I go, “This is a huge disservice to people who are just getting started in this business and don’t understand offer pricing.” The image was, it was a whiteboard and the whiteboard had all these rules for coming up with a repair estimate because that student was going to use the ARV times 70% minus repairs. So they were trying to come up with a repair estimate kind of rule of thumb. So I’m going to get the image out and read just some of the things that I saw. For example, if the property has a pool or doesn’t have a pool you plus or minus $10,000. You can plus or minus $5,000 per bedroom. You can plus or minus $10,000 if the property has a garage or not.
If you follow the ARV x 70%-repairs rule, you are going to end up offering way too low.
5,000 for a car port. 5,000 difference between a garage versus a car port. There are a lot of rules. I mean, this person has easily like 25 bullet points, and this is a lot to remember. If you were comping out homes and you’re getting maybe 10, 15 leads a day and you have to remember all of these things. I mean, this is a lot. So not only is this just a lot to remember it. I personally think this would get you in analysis paralysis very quickly. It’s just wrong. These kind of rules, these blanket rules about the property condition are not consistent with the entire country. That might be consistent in one area of the country, but not the entire country. So it bugs me when I see that, because when I got started that exact thing was taught to me.
I was taught to do that exact thing. I was taught to say, “Okay, the property could be worth this if it was fully fixed up.” We’re going to call that the ARV after repair value. And then you’re going to take 70% off of that and then you’re going to minus the repairs. And how you come up with the repairs is you are going to say, do $25 per square foot and times all the square feet it has in it. And then if it needs a garage or it doesn’t have a garage minus 10,000, and if it needs a new roof, you minus 5,000. I mean, it was just all these rules, right? And what ended up happening, and I followed those rules, and this is what ended up happening. And this is what’s going to happen to you if you follow those rules.
If you follow those rules, you are going to end up offering way too low, and that’s exactly what I did. When I first got started in real estate investing, I was a house flipper and I would use these rules that I heard from seminars and education courses. And I would end up offering way too low and I would have sellers telling me, “Well, no, another investor offered me 50,000 more than you’re offering me.” And I was scratching my head, I could not figure out how this is possible. It took me a very long time to figure out that I was doing things all wrong and now knowing what I know, I also wasted a lot of time with all these little rules. I can comp a property in five minutes or less and my team does this every single day. We get like 20 leads at least a day and they are spending less than five minutes coming up with offer prices.
And I’m going to teach you how we do that. So, but the first thing I want to paint the picture for you. I want you to think of houses differently because if you really think about it, it’s supply and demand. Okay? The theories of supply and demand go across all types of commodities and goods. The same theories apply, for nail polish, for hairspray. I’m a girl, I’m thinking all things like makeup, right? A chair, a special type of light bulb. I’m going to use the example. And I think this is a very, very good example to use is that of a used car. So imagine that you are in the market to purchase a used car. You are looking for a 2012 Chevy Tahoe. And what do you do when you are looking to buy a used car? Do you go and you look at 2012 Chevy Tahoes that you see on autotrader.com? Do you look for the most expensive one and then you look at all its features?
Do you come up with an ARV on a Chevy Tahoe? And then you go look for Chevy Tahoes that are used and you start making offers based on what the ARV of the Chevy Tahoe is minus the repairs that might need? No, you don’t do that, right? Instead you go to kelleybluebook.com, you type in 2012 Chevy Tahoe, and it gives you like a few options, like good condition, poor condition. I mean, I think it gives you like three options, right? And then it gives you an estimate of what that type of car is worth. And you take that estimate and then you go looking for the 2012 Chevy Tahoe and you just make offers around that estimate or a little bit less, right? The same rule applies for homes.
When you are looking at a home, you got a seller lead who owns a house. It’s a 1980s home that is in good condition. It’s livable, a tenant lives there, nothing’s really broken. Think of it like you’re buying the Chevy Tahoe. So what my team personally does, because this is a moment that everybody gets in analysis paralysis, even I can. I have a tool called Go Offer and Go Offer pulls everyone out of analysis paralysis at this point. So we get the lead, we have the address and we know whether it’s an okay condition, poor condition. Is it you got to scrape the thing, tear the thing down. We can figure out at least categorizing, whether it’s an okay, good or, poor condition, or excellent condition. And we type the address into Go Offer, and Go Offer gives us a range and that range right there pops us out of analysis paralysis, it takes two seconds.
So the website, if you guys want to look into it, it’s www.letsgooffer.com. It’s a software and it helps analyze offer pricing all over the country. So we get that range, and then the next step that I tell my team to do is I want you to support the narrative of that range. If you cannot support that narrative, then you need to move the range up. Now, what do I mean by support the narrative of the range? So you are going to get a range from Go Offer. You’re going to input the address and you’re going to whether the house is okay, it’s in good condition, it’s an excellent condition and Go Offer will teach you how to do that in their training. But once you do that, it gives you, it spits out a range, so let’s just say 50 to $65,000.
Now I want you to go look, however you guys pull comps. I personally like using PropStream because PropStream can give me the cash sales and I can see that it’s specifically an investor that purchased it. I want to find at least three properties that fell within that range. So I go, I look, I would just want to find three that looks similar to the subject property. I’m not with like a fine tooth comb, looking at the photos and going, “Oh wow. Well, this property has two and a half bathrooms. Mine only has two. So I need a minus 5,000 for that.” No, I am not overthinking it you guys, I have a range 50 to 65,000 for example. I just want to find three properties that are of similar age, they look similar, they’re about the same size or similar size, and that’s about it.
If I can find those three addresses, I can now support my narrative to the seller when I’m about to get on the phone with them and explain to them why my offer price needs to be between 50 to 65,000 and I explain the three comps that support that. That right there is the same way you would approach that owner of the Chevy Tahoe, right? You would say, Kelly Blue Book says, “I need to be at $13,000 for this Chevy Tahoe.” And maybe the seller of that Chevy Tahoe wants 18,000 and you’re going to show the owner, “Hey, here are three Chevy Tahoe, same age similar model that sold for 12, 11, 13. So, sorry, bro. I know you want 18, but you’re asking for too much.” It’s the same thing. So I’m telling you, if you go at this by let’s look at the ARV, come up with an ARV and then you’re coming up with this crazy repair estimate, which by the way, you’re not a contractor.
You are really just picking a number out of thin air with these estimates that a lot of people are coming up with. You are probably going to offer too low. Examples where this happens in my market all the time and I mean, we go against people. I mean, my market is super saturated and I hear it all the time from sellers that, “Oh yeah, I had this other guy look at it, but he offered me like half as much as you’re offering. So of course we’re going to take her offer. And it’s because that guy or girl is newer and they don’t understand offer pricing and they got ahold of that ARV times 70 minus repair rule. I can always tell.” So an example would be say a $100,000 ARV home, I’m just going to throw some random numbers.
You got a $100,000 ARV home and you take 70% of that and you get 70,000, right? And then, let’s see pairs, let’s come up with a random number based on it. It doesn’t have a garage, so I’m going to 10,000 for that and I’m going to take $25 times the square feet and it’s a thousand square feet. So 25,000 and then, okay, so that’s 35,000, right? I’m literally pulling numbers out of thin air. So let’s just say, we think repair’s going to be $35,000. So you got 70,000 minus 35,000, you are now offering the seller $35,00 for their home, but then here’s what’s going to happen. I’m going to come in and I’m going to see that other investors paid 65,000 for the same home.
And I’m going to know that if I get that property at least for 60,000, I might make a little fee. I might be able to push and sell the home for 70 to another investor. So I’m going to offer the seller $60,000. You’re going to offer the seller because you’re following these rules, 35. Who do you think is going to win? Who do you think is going to get the deal? Me, of course, right? So you guys, the ARV times 70% minus repair rule is dumb and I want you guys to stop using that rule. I want you guys to think differently about how you’re pricing homes. You need to look at it like, what are the end buyers paying for these homes? The way we come up with our offer pricing saves you so much time, so much headache, and you will absolutely close more deals. Do not make the same mistake I did, because I made this mistake for years.
The theory of supply and demand go across all types of commodities and goods.
No one taught this to me. I never stumbled upon a podcast like this that was telling me I was doing it all wrong. And gosh, I wish I did because I’d be a lot richer. So you guys, if you guys need more help with this, if you guys get stuck in analysis paralysis, remember there is a tool out there. Go to letsgooffer.com. And if you use my code you get $10 off the monthly subscription, my code is TMF like this mom flips, TMF. It’s cheap, it’s like 29 bucks a month. $29 a month to pull you out of analysis paralysis is nothing. I’ve seen take 30 minutes to comp out a house. And with this tool, it’s going to take you like under five minutes, super easy. It’s worth it. Give it a shot. I think they give you like a week for free, so try it out for a week. See if you like it.
And again, I really hope I drove this point home. When you’re comping homes out, think of the Chevy Tahoe example, think of it that way. I can not think of better example than buying a used car. They’re very, very similar. And that’s it, you guys, I hope you liked the advice I gave today. If you guys want to learn more about taking your business virtual, I am coaching all things virtual, check out www.virtualinvestingmastery.com. I have an awesome coaching program. We are changing lives in this program. My students are killing it. They are not limited to where they live anymore. I have now taught them how they can take their business virtual so they can live anywhere, but invest where they want. So if you guys are interested, check it out. Hope you guys liked the episode today and we’ll see you next time.
About Lauren Hardy
Lauren Hardy is a virtual Investing expert and real Estate influencer who owns multiple companies in the real estate industry including real estate investment, coaching, and software companies. She is also a Wholesaling Inc coach and co-hostoftheWholesaling Inc Podcast. Her experience in the last decade has been focused on real estate investing and creating products and services to serve the real estate investing community. If you are interested in investing in real estate virtually, house flipping, or virtual landlording, Lauren’s your girl.