9 Keys for Successful Comps.

Using comparable properties, also known as comps or comparables, is the best way for you to get an accurate after repair value (ARV) for a property you are interested in making an offer on. Your goal is to get a minimum of 3 good comps, you will take as many as are available, but you need at least 3.   Here are 9 steps that will help you get the best comps on potential properties you would like to make an offer on:

  1. All comps have to be sold properties.  You do not want listed properties or properties that are under contract.  The sales process has to be completed.
  2. No fore-closures, short sales, or rehab properties. You want move in ready properties only.
  3. Look for comps that have sold within the last 3 months.  If you need to go back further because you did not get at least 3 comps. you can, but you do not want to go back further than 1 year. 
  4. Comps should be within a half mile to one mile away from your subject property.  If you do not have enough comps with in the mile radius you can expand your area further to find sold properties that would make good comps.  This is most common in rural areas and I have seen comps go out to 3 miles away the subject property. 
  5. Interior square footage needs to be similar.  Use a range of 500 square feet or 20% whichever is greater.  Here is an example of how to use your square footage range:  Your subject property is 1258 square feet, so, you should get all properties that fall into a range from 1000 square feet to 1500 square feet.  That gives you your 500 square foot range.  When using the 20% rule take 20% of your subject properties square footage for your range.  For example: your property is 3500 square feet.  When you take 20% of the square footage you get 700 square feet.  Now you will use 700 square feet as your range.  Your comp range would be 3150 to 3850
  6. Your comps should have the same number of bedrooms and bathrooms as your subject property.
  7. Structure of the comp property needs to be the same as your subject property.  For example: If you have a 2 story home you want 2 story homes for comparables. 
  8. Acreage or lot size of your comps needs to be similar to your subject property. 
  9. Age of properties comps should be within 20 years of your subject property. 

The closer you can get your comps to what your subject property is the more accurate your ARV will be.   By using these steps, you can assure yourself that your comps will give you the best ARV available and helping you create a more accurate potential value for your subject property.

Pros of Using Trust Deeds

Buying and holding trust deeds is a great way to offset buying and holding a property. Trust deeds are also known as real estate notes, seller financed notes, and/or mortgage notes. Notes are usually created by the seller of the property to help finance all or part of the transaction. This service the seller provides usually attracts a lot more buyers for them. The terms, conditions, down payment, interest rate, due dates, payment amount, late charges (if any), length of the loan, and anything else associated with the note will already be negotiated between the buyer and seller of the property. Therefore, you do not have to renegotiate anything. As the investor buying the deed, you need to review the entirety of the note and decide if this is something you want to buy. Deeds are a great investment opportunity for investors. The pros of using trust deeds as an investment tool are as follows:

  • Usually a higher rate of return, meaning better cash flow for you.
  • Less risky than owning the property out right or investing in stocks.
  • No management of the property is needed.
  • No need to pay mortgages, taxes or insurance.
  • You are in first lien position on the property, meaning the trust deed is secured by the property.
  • You can possibly sell your note to other investors, usually at a higher profit than at what you acquired it.

Simply put, you are acting as the bank when you own a trust deed. Your investment is secured by the property, which means if the borrower is not able to make payments to you, you have the right to foreclose on the property, as long as you are in first lien position. Investing in deeds is a great investment strategy to add to your portfolio. I would suggest only getting notes that are first lien position notes. You can find other type of notes, but for now stick to these kinds and you will be in good shape.

Understanding the HUD-1 Settlement Statement

Before being able to purchase or sell a property there are a lot of legal documents to prepare. One of the most important documents required by the government in securing a mortgage loan is the HUD-1 Settlement Statement. HUD is the acronym for Housing and Urban Development.  Housing and Urban Development is a department of the government that is responsible for any legal transactions concerning real estate ownership and property development. It is the branch of the government that develop and enforce fair housing laws.

According to the Real Estate Settlement Procedure Act (RESPA), the HUD-1 Statement is a standard form used by a settlement or closing agent to account for all of the charges and fees incurred for a real estate transaction.  The HUD-1 statement is given to both the borrower and the lender with a complete breakdown of all the costs and adjustments involved before a loan is approved. The HUD-1 is sometimes referred to as a “settlement form” or a “closing sheet”. The borrower has the right to view the Settlement Statement one business day before settlement.

The HUD-1 Settlement Statement comes in three pages and divided into sections that are required to be filled. The first page of the form is composed of three main sections.

  1. Sections A – is the title of the document and does not need
  2. Sections B-I – asks for the basic information aboutthe buyer, seller, Title Company, lender.
  3. Sections J and K – are the transaction summaries of the buyer and the seller. The borrower’s details will be found on the left side and seller’s details on the right.

The second page of the HUD-1 settlement is where the entries of the fees and settlement charges are shown. Again, the buyer’s charges are in the left column and the seller’s charges in the right column.  These fees and charges are then added together and totalled at the bottom of the page. The total costs are reflected at the first page and added to the appropriate columns of the buyer and the seller. Generally, it is an inquiry of who pays and the total costs incurred. Often there are missing and unanticipated charges but these are common mistakes and the HUD-1 statements are changed before the closing.

The third page of the HUD-1 is divided into two sections. The first section at the top is a side by side comparison of the Goof Faith Estimate and the charges for the borrower that is also listed on the second page of the HUD-1. The Good Faith Estimate or GFE is an estimate of all the costs the borrower expects and is similar to the actual cost of the settlement statement. It is just an “educated guess” but it does not guarantee the actual closing costs.

This section of the third page summarizes the key terms of your home loan, from interest rates to closing costs. There are certain charges that cannot increase at all; other charges that, in total, cannot increase more than 10%; and other charges that can change.

The second section of the third page specifies the Loan Terms in detail.  It include the question of how much is the loan amount, what are the loan terms, the interest rate, the monthly principal, the interest and the mortgage insurance payment. It asks whether or not the interest rate can rise, and if so, by how much and when. It also lists if there is a pre-payment penalty and the total monthly amount owed. Basically, it indicates by how much the final closing costs can legally change as compared to the estimated costs shown in the GFE.

It is very important to thoroughly check the HUD-1 settlement form for errors to be able to make adjustments before the final approval and not be ashamed to ask questions to the closing agent if there are discrepancies in the figures or something is unclear.