1. REI ETUTOR Property Valuation

2. Three Approaches to Value REI eTutor Three Approaches to Value Cost Approach Income Approach Sales Comparison Approach

3. Explanation of the Three Types of Approaches REI eTutor Cost Approach: The estimated value based on construction costs. Land Value + Cost of Construction – Depreciation Income Approach: The estimated value based on rental income. Gross Rent Multiplier (GRM): Sales price divided by the monthly or annual rent. GRM of recently sold similar properties can be applied to the monthly/annual rent of the subject property to determine value. Sales Comparison Approach: The estimated value based on a comparison of recently sold similar properties. Sales price of comparable property is adjusted (increased or decreased) based on characteristics which influence value.

4. Sales Comparison Approach REI eTutor Ways to Determine Value Based on the Sales Comparison Approach Free Online Resources Public records Zillow.com Pay Services RealQuest MLS (if member of real estate community) Various investor resources  Visit your local REI club to learn what programs may be available.

5. Sales Comparison Approach REI eTutor How Does the Sales Comparison Approach Work? Appraiser Insight Select three comparable properties. Comparable is loosely defined as:  Similar in age  Similar in style  Similar in lot size/location  Similar in room count  Similar in square feet under air  Similar in condition  Similar in extras

6. Sales Comparison Approach REI eTutor Appraiser Insight Continued The three comparable properties should have sold within in the past 3 months, no more than 6 months. The properties should be located in the same neighborhood and no greater than 1 mile in distance (as the crow flies).

7. Sales Comparison Approach REI eTutor What factors are adjusted for? Lot Size, Lot Location, Lot View Bedroom Count, Bathroom Count Square Feet Under Air Property Condition Upgrades Garage/Carport Heating/Cooling System Extras – Fence, In ground Pool, Porch, Patio, Etc. What are the adjustments based on? The market’s reaction for the differences.

8. Sales Comparison Approach REI eTutor I thought services like Zillow, RealQuest, and etc. do this for me? They do but they are not 100% accurate. Our concerns include:  Condition  Upgrades  Square Feet Under Air Property valuation fundamentals are key!

9. How do we determine these adjustments manually? REI eTutor Property #1 Sales Price: $175,000 One Story Home 6,000 sq. ft. lot/residential 3 Bedroom 2 Baths 1800 Square Feet 2 Car Garage Inground Pool Property #2 Sales Price: $197,000 One Story Home 6,000 sq. ft. lot/residential 3 Bedroom 2 Baths 2300 Square Feet 2 Car Garage Inground Pool Sales Comparison Approach

10. REI eTutor Adjustment Calculation Difference of 500 square feet Sales price difference of $22,000 $22,000 dividend by 500 square feet Difference is $44 per square foot. This example is very simplistic. The idea is to find two sales with the least amount of differences and perform a comparison for each difference.

11. Sales Comparison Approach REI eTutor Repairs If the subject property needs repairs, try to find comparables in similar condition. No comparables in similar condition? Expand your search criteria.  Sales within the past 12 months  Distance greater than 1 mile but less than 2 or 3 miles.  Slightly different homes but in same neighborhood/development. Still no luck? Adjust based on the estimated repair cost (retail).  We define retail as the cost a typical homebuyer would pay for the repair.

12. Sales Comparison Approach REI eTutor Tips Compare apples to apples  One story to one story  2 car garage to 2 car garage  Pool home to pool home Use your best educated guess to determine adjustments. Do not apply the same adjustments from one neighborhood to a different neighborhood. Once you have determined the adjustments for a specific neighborhood, recalculate every 2 to 3 months, not every deal.

13. Sales Comparison Approach REI eTutor Remember – you are NOT an appraiser BUT the better you are at property valuation the greater your potential profit. Why? Where the numbers may be close you can structure deals that other investor’s can’t. You can reduce your marketing time by having a better feel for property values in the market. You have the potential for creating larger profits by having a more accurate purchase price and exit price.

14. Conclusion REI eTutor REMEMBER Every Offer Does Not Result In A Deal But Every Deal Is The Result Of An Offer