Comparables or comps for short, are recently sold properties, similar to a potential investment property, which help you determine the current value and the After Repair Value (ARV), or resale price, of that potential investment property.
Why are comps so important?
Comping a property is a critical part of the analysis phase of a deal. Finding good comparables ultimately helps you determine the Maximum Allowable Offer (MAO) you can make on a potential investment property, along with what you think you can sell the property for.
This offer will be based on things like:
- The amount of repairs a property needs
- How much is owed on the property
- ARV - What you think you will be able to sell it for, based on current comparables
What happens if I get it wrong?
If you get the comparables part wrong, you will probably get the ARV wrong, which could have a big impact on your profit margins.
If your ARV is too high, your property may sit on the market too long which will increase your holding costs on the project.
If your ARV is too low, it will sell quickly, but you may have left money on the table or worse, you could end up putting more into the property than it's worth.
Where can I find accurate comps?
You can find comps in three different places.
- Public Data
- Multiple List Service
Each of these sources have their pros and cons.
Want to learn more about comping?