How to Estimate Investment Property Values Quickly and Accurately

Getting your numbers right in real estate investing can make the difference between keeping your business profitable and potentially losing your shirt. One of the most important things you’ll need to know is how to estimate the value of an investment property. This is a skill that will come in handy whether you’re buying, selling, or just assessing the worth of a property you already own. So do you know how to estimate investment property values quickly and accurately, or are you just feeling around in the dark, ballparking it and hoping for “close enough?”

The truth is, it’s not difficult to estimate property values once you know where to look. The easiest way to do it is by evaluating your comparables, or “comps.”

Comparables, or “comps,” are properties that are similar to the one you’re trying to value. They can be used to give you a good idea of what the property is worth. But I’ll get into that further below. First, let’s talk about why you’ve got to nail your estimates right the first time and break down what kind of comps you need to look for and what to do when you’re coming up short. Let’s dive in. 

The Importance of Getting the Most Accurate Estimates in Real Estate

I know that you think you understand how critical it is to nail the estimate to the closest possible amount, but indulge me for a minute. Some experts believe that in the real estate industry, a 1% difference in the estimate can mean a 10% difference in the final sale price so let’s recap what an accurate property value estimate can do for your business.

A lot can hinge on getting the estimate right, from the amount of money you make to the amount of time it takes to sell. In dollar terms, if you were to estimate a property at $200,000 and it sells for $210,000, then you’ve made an extra $10,000. Conversely, if you estimate a property at $200,000 and it sells for $190,000, then you’ve lost $10,000.  This is a huge difference when you’re starting out, and every dollar counts, which is why it’s so important to be as accurate as possible when estimating a property.

There are a lot of factors that go into estimating a property, from the size and condition of the property to the current market conditions that I’ll break down below. But just to drill this into your head a little more: It’s critical to your revenue stream that you take all of these into account when making your estimate and to be as accurate as possible.

Seriously, don’t skimp on this part. 

The Quickest (and Easiest) Way to Get an Accurate Property Value Estimate

Okay, now that you’ve been scared straight when it comes to getting your estimates right, let’s break down exactly what you need to do and how.

Step 1: Find 3 – 4 Comparable Sold Properties

The best way to estimate a property’s value is to look at comparable properties in the area. You can find these by searching real estate websites like Zillow or Redfin. These websites allow you to search for properties in a specific area and see a range of estimated values for each property which can help you get a general idea of the value of an investment property in a particular area.

My general rule of thumb is finding properties within a 1-mile radius with similar features. Ideally, you’ll match square footage, beds, and baths, if not other features of the house. Once you have 3-4, you’ll want to pick the cheapest one as your comp. It’s better to underestimate than overestimate and end up in the red, so always choose the cheapest comp as your main one.

Step 2: Find 3-4 Comparable Properties Currently on the Market

Once you’ve got your sold comps, it’s time to see what’s currently out there in the market. You want to look at current listings next because of how quickly the market fluctuates and how fast data can be made obsolete.

You have to take into account market changes, even if only a few months have passed. Think about it like this: You’ve found what you think is a decent comp, but eight months have passed since your sold property comparison and the market’s dropped 5%. On a $200k house, that’s $10k you’re missing out on. 

Use the same parameters as above, and see what homes are currently listed. Once again, pick the lowest-priced one as your benchmark to see if your deal will be profitable. 

When to Throw Comps Out the Window

While comparables are your best bet for finding the most accurate property value estimates, there are times when they’re just not good enough. Here are a few things that make your potential comps, well, compromised. 

1. When the Comps are Too Old

Comparable properties that are too old can be misleading. The market can change a lot in a year, so properties that are only a few months old may not accurately reflect the current market.

2. When the Comps are From a Different Area

If you’re trying to value a property in a different area than the comps, the values may be skewed. The market for properties in other regions can be very different, so it’s essential to use comps from the area you’re trying to value.  

My 1-mile radius measurement is a good rule of thumb, but don’t stick to it in EVERY scenario! It’s pretty common (especially in major cities) to have a nice part of town flanked by more run-down areas – and certainly within a mile. 

You can see how this would be an issue – without more knowledge of the area; you might grab expensive comps from a nicer neighborhood because it’s within a 1-mile radius. In reality, your home is in a less desirable location, and no amount of rehab will ever approach the value of the houses across the street.

3. When the Comps are Not Similar Enough to Your Property

If the properties being compared are not similar enough to your potential investment property, then you need to decide whether you’ll compromise on your estimate or throw the idea of finding other comps out altogether.  Some factors that you should consider when trying to find similar properties to compare to your potential investment are:

• Age
• Condition
• Square footage
• The number of bedrooms/bathrooms
• The type of property (single-family, condo, townhome, etc.)
• Amenities – pools, central air, garages, smart home capabilities, etc.

All of these are moving parts that can drastically swing the reliability of your comparable-based estimates. You’ll need to decide whether you should drastically undercut your assessment to account for the differences or scrap the idea of using comps completely. 

4. The Surrounding Locations are Too Different

Pay attention to what’s near the property. For example, maybe you find a property that seems to be underpriced by $30k, and you think you’ve found your next fix & flip! But upon closer inspection, you notice the home is located on a busy street right next to a Burger King – thus explaining the $30k dip in price.

The comps in that area won’t be accurate because they’re not all next door to a Burger King!

Should You Adjust Your Estimate If There Are Bad Comps or Scrap Using Comp Data Completely?

I can’t really advocate for one method over the other because your decision whether to be flexible in your estimate or scrap comps as an indicator is based on the amount of risk you’re willing to take and what other viable solutions you might have available. My best advice would be to tread carefully, trust your instincts, and don’t let money cloud your better judgment. 

What to Do When There Aren’t Any Good Comps

So let’s say you’ve ended up with either bad or no comps. Does that mean you’re out of luck for getting an accurate estimate? Not entirely. There are still a few ways to get close to an accurate estimate for your investment property.

1. Talk to a Real Estate Agent

A real estate agent can help you find comparables in your area that are similar to the investment property you’re interested in. They’ll also be able to give you an idea of what similar properties have sold for in the past.

2. Look at Recent Sales Data

 If you don’t have a real estate agent, you can still get an okay idea of what a property is worth by checking out recent sales data as a whole. You can find this data on websites like Zillow (head to their Research area) or Statista. 

3. Ask a Contractor for an Estimate

If you’re unsure about the property’s value, you can ask a contractor for an estimate of how much the work could affect an appraisal. You won’t get much help regarding the listing price you could expect, but your contractor can help you determine whether or not rehab work would make the property more desirable and, therefore, easier to sell. 

4. Look at Market Trends

In addition to checking out recent sales data, it’s also a good idea to look at market trends. This will give you an idea of how the market is trending and whether or not now is a good time to buy an investment property.

5. Ask a Hard Money Lender

If you already have a relationship with a hard money lender, you might be able to leverage that for some help. The Investor's Edge is one of the few lenders that do Independent Real Estate Evaluations. During these evaluations, we use two experienced third-party real estate professionals in your area to help go over your SOW and appraisals for every deal. Other lenders might not do this, but the good hard money lenders are seasoned enough that we can give you a few ideas for where to look or what to do, especially if we’ve lent money to other investors in your area. Hard money was created especially for the real estate industry, so we know what it’s like to get caught in a comp dead-end much better than traditional lenders like banks or credit unions. 

6. Talk to Other Investors

Never discount the power of networking! Investors are an excellent resource for finding comps. They’ll likely know of properties that have recently sold in the area, and they can give you some insights into what’s selling and for how much. I find that newer investors get intimidated to make friends with their competitors because they’re worried they’ll get bad advice or be taken advantage of but that’s rarely the case. In reality, the majority of investors I’ve met have been nothing but helpful and open. We all started at $0 and needed that extra hand to help pull us up, you know? 

Final Thoughts

Getting your property value estimate right is a critical factor in your success as a real estate investor, but it takes work on your part to research how your local market works and the factors that contribute to how much your property is worth. Remember to underestimate the value while overestimating costs so that you’re never stuck in a position where your business loses money. 

How have you found comps when there weren’t any traditional ones around? Leave a comment and let me and the readers know!

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