Are You Getting a Good Deal on Your Investment Property?
“Am I getting a good deal?” It’s a worthwhile question to ask yourself before any purchase, but never better than when considering an investment property.
As you become more familiar with a market and its neighborhoods, you will start to become familiar with its fair market values.
If you are new to a market, do your research. You have many resources available to help you determine the fair market value of a particular piece of real estate. Here are some places to start:
Free Resources on Getting a Good Deal
1. The “Zestimate” — Auto-Appraisals by PropTech Companies
Property technology (aka PropTech) companies have been working for years to refine a method of accurately appraising the value of a piece of property based on computerized data analysis.
The most famous of these “auto-appraisal” algorithms is the “Zestimate” by Zillow. Search any property address in the US, and Zillow includes an estimate (or “Zestimate”) of its value, extrapolated from property data and data from recent nearby sales.
How accurate is the Zestimate? It has a nationwide margin of error of 3.2% for on-market property, 6.9% for off-market property. This adds up to thousands of dollars by which the Zestimate could be off.
But Zestimate inaccuracy tends to correlate with bad data. If you have independent verification of the data you find on the Zillow page (square footage, number of beds and baths, lot size, etc.) the Zestimate might be a better guide.
Bottom line — don’t stop with the Zestimate, but it’s not a bad place to start.
2. Property Tax Records
The county appraiser periodically estimates the value of all the real estate in the county for taxation purposes. Property tax records are public and usually available online from the county’s website.
Bear in mind that the assessed value is rarely the market value. Counties often assign a percentage of the property’s appraised value as its taxable “assessed” value. It might be 80%, 50%, even 20% of the appraisal. Make sure to note the appraised value and not the assessed value, which could be much lower.
The most common occasion for a re-appraisal by the county appraiser is the sale or transfer of the property, at which time the appraiser notes the sale price. If the property has not been sold in years, the county appraisal might be outdated. But if the property sold recently, the county appraisal might be quite accurate.
3. DIY Comparative Market Analysis
The comparative market analysis (or CMA) is how REALTORs estimate home value. A CMA involves comparing the subject property to recent sales of similar properties in the area. There’s no reason you can’t do one yourself. It might take practice, but it isn’t rocket science.
To perform a CMA, you need to know what nearby property has sold recently. NOTE — this isn’t for sale, but closed sales. Whatever database you are searching, make sure you are looking at completed sales and not “pending” or “listed.”
The closer the property, the more recent the sale, and the more similar the property, the better. Bear in mind that properties are rarely identical. You might need to adjust the recent sale prices for differences between the properties — i.e. more or less square footage, an extra bedroom or bathroom, etc.
The most accurate database to search is the REALTOR multiple listing service (MLS). If you don’t have access to the MLS, the next best resource is Redfin, and after that databases like Zillow or Trulia.
Here’s an insider’s tip: At MartelTurnkey, we share pages and pages of homes we have sold over the past years so you can scroll through them to see what houses in specific neighborhoods have sold for. Find these on the Turnkey Rentals for Sale pages.
4. REALTOR Comparative Market Analysis
If you don’t trust your own CMA abilities, you can hire a REALTOR to do one for you. REALTORs usually offer CMAs for free with a representation contract, but if there’s no chance of a commission for representing you, they may charge a nominal fee.
5. Professional Appraisal
A professional appraisal is probably the most expensive option. It’s also not necessarily more accurate than a CMA. Professional appraisals are more for the lender to determine the maximum loan balance they will approve against the property.
You can order an appraisal even if you aren’t applying for a loan, but in the analysis phase of a real estate deal it’s usually overkill. Don’t worry — if you are applying for a mortgage loan to finance the purchase, an appraisal will definitely happen at some point.
You can use any or all of these resources to verify the market value of the property in the MartelTurnkey inventory of turnkey rental properties ready to go.
Our goal is always to hand over a done-for-you investment with positive cash flow — meaning any MartelTurnkey rental will help you achieve financial freedom through passive income.
But a “good deal”— that is, a turnkey rental at or below market value — could mean more headroom for appreciation … which means more potential ROI!