How to find undervalued properties

Feb 06, 2022

How we find deals…

When it comes to finding the deal, there are five main steps that we have to execute:

Identify an area
Specify a property
Locate the owner information
Contact the owner
Execute contract

Identify an area

You want to find an area where there is demand. One metric we look at to determine this is active days on the market (ADOM). Properties sold with low ADOM signal high demand in the area. Once we establish our working area, we want to look for undervalued properties.

We want to see most of the properties with low ADOM when looking for specific areas, as seen above.

The boxes in red highlight what you want to see; the property SOLD, and the ADOM is low(**< 30 days**).

Specify a property

What constitutes an undervalued property? An excellent way to determine this is to find the after-repair value (ARV). To find the ARV, we have to locate a comparable property SOLD on the market.

Note: We want to ensure that the property appears as SOLD. A PENDING or ACTIVE listing is not a comp.

Undervalued property example:

Bedrooms/Bathrooms: 3/2
Sq Ft: 1550
Year Built: 1980
Purchase Price: $200k

Comments: It has some deferred maintenance on it, and it will need $30K in repairs.

Comparable property example:

Bedrooms/Bathrooms: 3/2
Sq Ft: 1600
Year Built: 1985
Sold Price: $300k

Comments: Recently repaired. New kitchen, flooring, and paint.

Another type of undervalued property is vacant land. To qualify as undervalued, it needs to meet the following criteria:

Land must be buildable.
The land price + project cost must be less than the new homes in the area.

Let’s suppose a buildable lot costs $30K and new homes in the area sell for $250K. If we know that we can build a similar home for $150K, that will make our project cost $180K, which would make it an acceptable deal(assuming we can sell at $250K).

In this example, we bought the land for $21,500, knowing we could build the home for $150,000. Our estimated sales price was $250,000 at the time.

As you can see, we were pleasantly surprised when we sold it for $282,000. The hot market helped us in this situation.

Identify the owner

If the property is an off-market deal, we want to locate the owner's information to contact them. If the property is on the market, we will contact the realtor representing them.

Off Market deal: Locate owner's contact information

Phone number
Email
Home address (can find on MLS)

Market deal: Contact the owner’s representative

Realtor's contact info (can find on MLS)

Contacting the owner

Once we have the owner's information, we will contact them and negotiate a deal. In reality, most owners won't want to sell their property. The best way to combat this is to look for many properties, get the owners' information, and contact all of them. One of them is bound to say yes.

Tip: We like to accumulate lists of potential properties that contain the property name, owner name, and phone number. We use the MLS, skip tracing software, and spreadsheets to do this.

This list contains many properties that fit our criteria, along with all the owner’s contact information.

Execute contract

Lastly, we will execute the contract and follow through to the closing. This process has many small steps. Among these are:

Signing the contract
Opening a file with the title company
Inspection period
Closing

Next steps: These properties aren’t free, so how do you raise the money needed to close? In reality, you will have the necessary funds before the closing if you follow our system correctly.

Our FUND section starts well before the negotiations with the owner. If you are implementing the system correctly, you will have the money needed to close the deal available to you.

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