Assessing Properties

What it is

Assessing a property is how you decide whether a house is a buy or a no-buy before you write the offer. Not a full inspection. Not a wish list. Just enough diagnostic work to know what it needs to hit the top of the range of comps and what that’s going to cost you.

A successful investor assesses multiple properties a week. For every one they buy, they’ve probably underwritten ten or twenty. “The main way that you go and get a great deal is by assessing a lot of bad ones first.” You get fast or you don’t find deals.

Why it matters

Ross’s framing on what you actually control in a deal: there are four controls. The acquisition price, the strategy, the work carrying out the strategy, and the market (which you don’t really control; it is what it is). Acquisition is number one. “That’s basically what sets the successful investors apart from the unsuccessful ones.” Get the walkthrough wrong and you pay too much or miss scope, and the flip is blown before you swing a hammer.

You don’t need to stand in a house to know the answer. “I need pictures, a rough square footage, a neighborhood, and a calculator. That gets me 90% of the way there. The last 10% is walking the house to catch things the pictures hide, and that only matters if the first 90% pencils out.” If the math fails on paper, it doesn’t matter how pretty the house is in person.

How it shows up

Ross looks for three things past the normal underwriting: the triple threat, the mirage, and big six.

The triple threat is signs of bleeding (active water intrusion, structural deterioration that’s still moving), structural safety, and ugly: the stuff nobody else wants to look at. the mirage is the house that looks good until you poke at it: new paint hiding rot, a flip job that covered up the real problems. big six is the big-ticket renovation line items you budget for upfront: structural, roof, plumbing, electrical, HVAC, windows and siding. Each one is $10K+ potential.

Start at the roof and work down. Are the shingles curled, losing granules, missing? Any water spots on the ceilings inside? Where’s it coming from? Foundation next. Then the mechanicals. Does the electrical have an old fuse box or a new breaker panel. Is there galvanized plumbing. Does HVAC run or has someone put consumer space heaters in the rooms (they did that because the HVAC isn’t doing its job).

The assessment ends with a scope you can hand to subs for bidding, not a wish list. If all six of big six are present, you’re at sixty grand before you’ve added flooring, paint, or cabinets. Build that number, then subtract from ARV to see if there’s still an equity gap. If not, walk.

Related

four controls, triple threat, the mirage, big six, bleeding, equity gap, range of comps, scope of work