How I’m Calculating Value

[Daniel Otero]

Hi everyone! I’d like to share how I’ve been thinking about property values considering the kind of market we’re in right now. I talked about values dropping previously, but now we’re all seeing rates rise and values coming down, in some places fast, other areas slower. We know to help determine the value of a property we should look at other similar properties in that area, but if you make a deal 20-30% below current market value and all property values continue to drop after you make your deal, you are now underwater on your property value. Having cashflow helps weather that storm, but if we’re looking to flip the property eventually, we’ll want the best purchase price we can get. So I’d like to share how I’m calculating value and see what everyone thinks. I have an example of a property below:

Address: 107 Cypress St, Kissimmee FL
Current purchase price: $154,900
2bd, 1ba, 576sqft
Estimated monthly payment: $935
Current interest rate: 6.146%

Now, I’m not factoring in the area, which is a little rough, or the cost of any rehab which I think it does need. Adjust this math for whatever down payment is given. In this case its 20%. I’m going strictly off of math. In 2020, the price of this house was $111.6K, with an interest rate of 3.11%. The monthly payment was $509. However, now we have an interest rate of 6.146 according to Zillow, so we must lower the purchase price of the property. In 2020 the monthly payment was $509 a month, purchase price of $111.6K and interest rate of 3.11%, so now I’m thinking I need to match the purchase price to the level necessary to accommodate a higher interest rate of 6.146%.

To bring the monthly payment of this property down to the 2020 monthly payment of $509, I have to lower the purchase price of today down to $84,400. This gets me to a $509 monthly payment with an interest rate of 6.146%.

Factoring in the area and any rehab and I’d offer maybe 65K, but the $84,400 is what I calculate for today’s value and that is what I would offer to the seller. If I’m rejected I would offer this explanation of why I came up with the $84,400. Apparently Zillow says the property sold for 16K in 2020, not sure how true that is. I haven’t looked at the tax assessor’s site yet on it. So I wanted to provide this example to show everyone where my thoughts are on how I’m coming up with the value on a property in this falling market which still has a long way to fall. Thanks for reading and any feedback on this.

[Tom]

Daniel,

I like it but remember buying in a declining market and planning a fixer upper you continue to decline during fix up as well and also may encounter one or two increases in the fed rate. I think try hard to flip it as a fixer and do very little and consider offering less. When there is so little activity people will discount drastically.

Thanks Tom

• This reply was modified 1 year, 8 months ago by Tom.

[Daniel Otero]

Hi Tom,

Thank you for your feedback! As far as my math went, is that a good assessment of value? Besides comps I’m trying to determine undermarket value compared to past prices and interest rates.

Dan

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