What Are Investors Paying for Properties in Your Area?

Why retail comps do not price a distressed house

Retail comparables answer one question: what will this house sell for when it is finished. They say nothing about what a buyer who has to finance a rehab, carry the property for six months and pay to sell it can afford to pay today. That second number is the investor price, and it is always lower.

Pricing an as-is house from retail comps produces a predictable failure. A seller reads the neighbor's renovated sale and anchors on it. A new investor, working from the same comps and a rule of thumb, offers a little under it. The deal closes, the rehab runs over, and the spread that looked comfortable on paper was never there.

Investor price per square foot

Investor price per square foot is the purchase price of a confirmed flip divided by its living area. It normalizes for size the way retail comps do, so a 1,400 square foot purchase can be compared with a 1,650 square foot subject.

Paired with the resale price per square foot from the same flips, it produces the local discount: one minus the ratio of the two. A neighborhood where investors buy at $101 per square foot and resell at $154 is running a 34% discount, whatever the 70% rule says.

The manual method: county records and closed sales

The pairs are in the public record. Finding them by hand is slow but entirely possible, and worth doing once so you understand what the automated version is looking for.

1. 1

   Pull every sale within a mile for the last 18 months

   County recorder sites, the assessor's sales history, or closed MLS data through an agent. You need the address, the sale date, the price and, ideally, the buyer entity.
2. 2

   Find addresses that appear twice

   Sort by address and look for a second sale within twelve months of the first. Those repeat sales are candidates. Add current listings, because a purchase followed by a new listing is a flip in progress.
3. 3

   Keep the pairs with a 30% or larger gain

   A 5% gain a year later is a normal resale. A 30% or larger gain inside twelve months almost always means capital went into the house between the two sales.
4. 4

   Confirm with the buyer entity and the listing photos

   An LLC or trust as buyer, a cash purchase, and before-and-after photos on the resale listing confirm the flip. Drop pairs that were family transfers or refinances recorded as sales.
5. 5

   Record purchase and resale price per square foot

   Divide both prices by the living area. Three to five confirmed pairs give you a defensible investor price and a local discount.

An afternoon per neighborhood is a fair estimate for the manual version, and the answer decays: three months later the pairs have changed.

How automatic flip detection works

Smart Rental Investor runs the same logic against sales records around any address you enter. Two consecutive sales within twelve months at a 30% or greater gain is a confirmed flip. A purchase within the last twelve months plus an active listing is a flip in progress, and the asking price stands in for the resale.

The search starts at half a mile and widens to one mile and then two until it has enough evidence, then relaxes the bedroom and bathroom filters by one if the neighborhood is still thin. Each flagged property carries both prices, both prices per square foot, the holding period and the discount, on a map and in a table.

Example uses public listing data for illustration. See disclaimer.

Example uses public listing data for illustration. See disclaimer.

A worked example: pricing an offer from investor purchases

The subject is a 1,500 square foot house that a wholesaler has under discussion with a seller. Three confirmed flips sit within a mile, and renovated resales put the ARV at $230,000.

Had the wholesaler applied the 70% rule to the same ARV with a $40,000 repair estimate, the ceiling would have been $121,000, an offer no seller in a 34%-discount market needs to accept. The local evidence found $29,000 of room the rule could not see.

Using investor price to set your offer

The investor price is a ceiling for an as-is purchase, not a target. Three adjustments turn it into an offer.

• Condition relative to the flips. If the subject needs a roof and the comparable flips did not, subtract the difference. Investor price per square foot assumes a typical rehab for the area.
• Your cost structure. A cash buyer with an in-house crew can pay more than the average flip purchase and still hit the same return. A first-time flipper on hard money should sit below it.
• Your fee, if you are assigning. The end buyer pays the investor price. The seller gets the investor price minus your fee. Both numbers have to work, and the wholesale calculator guide shows how they fit together.

When the ARV comes from renovated resales and the offer comes from investor purchases, the spread between them is real, because the market produced both numbers. That is the difference between an offer a seller can argue with and one they cannot.