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Deal Analysis 101: Finding Comparables
Many people really do struggle with this one, so we thought it would be a great idea to put together this helpful article to help you master an important skill! Let's talk about comparables...
Let’s talk comparables… a lot of people struggle with comparables so I’m going to share how I approach finding the best comparables possible.
The Purpose?
The why - is so you can effectively analyse if the property is worth what the vendor wants or not! If a property is over-priced you can use your findings to negotiate downward.
Property investing should never be about emotions, it's about data and figures.
You must have heard that you make your money often on what you paid - you don't only earn money on what you sell at. This is why many investors want a below market value property!
Types of Comparables to Look For?
I prefer to look for a mixture of comps so If I’m analysing a property as let’s say, a buy to let… and I know what the vendor wants for it – I will look for on the market comps and I will look for sold comps.
This way I get a solid idea of the market conditions and what people are trying to sell at and also if we have recent comparable sales, I will know what they are actually selling for and if the vendor is asking too much.
Always remember the price a property is advertised for... is not necessarily the price it will sell for.
You can find out on the market prices just from using Rightmove and Zoopla and looking at what is for sale in the same postcode area.
There may well be a mixture of properties, terraced, semi-detached, detached, flats etc. So narrow down the search and look for a property with the same number of bedrooms and imagine... if you looked at the property from the outside, would it compare to the one you have found.
This is where people struggle. Remember all you need to do is filter the search results enough to get a good comparable.
Think about the following when looking for comparables:
Size of property
Distance to property you are comparing
If sold comparable (when was it sold? Ideally in last 2 or 3 years!)
Number of bedrooms and size of bedrooms
Condition of property
Does property have off-road parking (this adds value)
What is the £ per square foot of both properties
Compare plot size / outside space
Does the property layout work? (no rooms leading off other rooms)
Obviously a 3-bed terrace is going to be smaller, than a 3-bed semi (in most cases.) One important thing to take note of is the actual square footage. This will give you a £’s per sq. ft - so you know how much house your pound sterling will buy you! Check the floorplan!
Valuers or Surveyors will value a property often using a £ per sq. ft ratio for that specific area – obviously, other things are taken into consideration such as, facilities, room sizes, market data etc but it’s a really good metric to be aware of.
How To? Finding Comparables:
Use Rightmove & Zoopla (for sale & sold comps in area)
Filter your results based on (number of bedrooms, distance to your property, size, condition)
This leaves you with (hopefully) some comparables to work with.
Analyse the data
How do you find sold prices? Well its super simple again you can use Rightmove, or the land registry websites. Just pop in a postcode and hit search.
Again the clue is in the name – it must be comparable to the property you are analysing. Similar size, similar floorplan, similar condition, similar style of house, same number of bedrooms etc.
If you cannot find any recent comparables in the last couple of years – then you have two options… extend your search area slightly till you find comparables OR… you look at older comparables that sold 3 to 5 years ago.
My top tip is: If your using older comparables – look at what happened to capital growth in that same period, so you know if the price makes sense or not. For example, if capital growth was only 10% in the past five years and yet the property is priced 20% higher, than why is that the case?
You have to really look at the data. There could be a valid reason, like they added an extension, or off-road parking or.... it could be they are simply asking too much money for the property.
This is why comparables are a vitally important part of analysing any prospective deal. You look for comparables to back up the asking price or help you negotiate the price down.
What about rental comparables?
If you’re looking at a property that will be a buy to let you will want to know what it will actually rent out for. This is much simpler, and you guessed it if it were a single let, you would look at properties to rent in the area online and get a feeling for the right price.
Again it goes without saying, it has to be a similar type of property… it has to be in the same area as the one you’re looking at. But what about the finish…. If you’re looking to rent a property out, what level of finish will it have?
Will you be adding new kitchens, bathrooms, will it look like a show home when your done, if so... be sure to look for that style or level of finish, when finding rental comps.
If however you were looking at room lets and you were analysing a HMO it’s really about three things… first it’s room size – bigger hmo bedrooms will let for more, secondly it’s about the facilities, if you have a hmo bedroom with an En-suite again that’s going to be at the higher end.
And last… it’s about the finish, if its really basic you’ll get less rental over a 5-star hotel style bedroom with all the mod cons like a smart tv etc.
There are a few options when comparing hmo rooms. You could look on the website www.spareroom.co.uk and carry out a search. Or you can use a website like www.propertydata.co.uk
Summary:
Your comparables should be a mixture of, on the market, sold comps, and rental comps – taking into consideration, size of property or rooms (if a hmo) and looking at things like £ per sq. ft, number of bedrooms, floorplans, area, type of property, off-road parking, outside space etc.
The bottom line is it has to compare in as many ways as possible to the one you are analysing.
Lots of people struggle with comparables and I think when you apply what we have discussed today it’s really just an exercise of applying the data, analysing the findings and if they are a suitable comparable – does that make your deal your analysing attractive or does it tell you that the vendor wants too much – either way you have all the data and you can negotiate or offer on the property based on your analysis.
Comparables is just one part of your due diligence process but a really useful skill to master if you’re an investor or deal packager.
My advice is don't overcomplicate things... find the best comparables you can using the above and apply that information to the property your looking at.
Just understand this if your new to this... finding comparables and analysing deals is something that becomes easier over time.
Eventually you will do all this without so much of a thought. It's just a process you have to learn and it's really not all that complicated. The biggest issue people is they doubt themselves!
If you would like a property mentor 1 to 1 helping you in your business - without the usual huge costs... you should start by looking at our free property workshop here.