BBBG Formula

The BBBG Formula & The 5 Point Condition Factor
You have comps based on (1) CATEGORY:
3 beds, 2 beds, 1 beds, etc.
Full, 3/4 or half baths
Basements or not
Garages, carports or street
I call it the BBBG Formula (bedrooms, bathrooms, basements & garages). It should be the basis of your initial comparison.
Yes, I know…age, square footage and construction type (stick or brick) matter too
Next…
You have comps based on (2) CONDITION:
New construction
Fully rehabbed
Livable and clean
Livable, needs work
Complete beater

These range from “highest price” at the top to “lowest price” at the bottom. You can’t compare a “beater” to “new construction” and think you’ve just comped the house
Stupidly Not As Obvious As “Some” Suggest
TRUTH IS the obvious becomes “less” when you’re all of a sudden trying to compare a house that is “livable, needs work” TO a house that is “livable and clean”. And yet, that “might” be all you have available…and it’s EXACTLY what most people try and do. It’s wrong.
The result. You either pay too much and lose your shirt or you offer too little and never get a deal.
Oh…and let’s not forget about how activity in the market makes or breaks your profits…
You have comps based on (3) ACTIVITY:
Properties Sold
Properties Pending
Properties Active
Yeah, this is probably the “real killer” to most unsuspecting newbie and experienced investors. How do you think I discovered how important it is? Yeah, exactly…the hard way.
Here’s the deal…
The Crazy Case Study
You’ve finally found what you think is A GREAT DEAL. Your price: $42,150
…and it probably plays out a lot like this…
You: “What are the comps?”
Your agent: “I’ve got a dozen solds within 10 blocks”.
You: “Sweet. So what do you think it will sell for?”
Your agent: “This should be a no-brainer at $85,000, dang that’s a $40K deal you got.” <— um, cough, cough NO IT’S NOT
You: “Ok, yeah, this is sweet, let’s do it.”
Here’s The Problem
You didn’t ask ANY of the right questions.
Questions like:
>> What is the condition of the dozen solds you have?
>> How long ago did they sell?
>> Are they real comps based on the BBBG?
>> How many “pending” and “active” properties are on the market?
…and a whole lot more…

Here’s the SUMMARY:
$40K Is Never $40K
You just screwed up because you compared (by not asking the right questions), your 2 bedroom “total beater” to a mix of 2 and 3 bedroom livable, rehabbed and new construction houses with sale dates going back a full year.
Your beater doesn’t have a basement and 1/2 of the ones used to get your $85K exit price did. And, well, those dozen solds sound good, except only 2 of then are in the past 60 days…
Your “flip” just made you a landlord
So what could you do about this problem?
Simple.
Ask the right questions starting with.
“What is my exit strategy — flip or hold? And, does the market support my plan?”
Here’s what I mean. You could easily look at the following numbers in any city to show you “CLEARLY” whether your exit strategy is likely to work. How many of each type of property are there “right now”…
What It All Means
Let’s say you discover the following:
2 Solds, past 60 days (both beaters) <— see how time & condition matter
9 Pending, currently (6 beaters, 2 livable, 1 rehabbed) <— see how condition matters
11 Active, currently (3 beaters, 2 livable, 6 rehabbed) <— see how condition matters
…Solds establish PRICE
…Pendings establish DEMAND
…Actives establish SUPPLY
See, in this scenario…you’d probably “overpay” for a house in an area that has lots of demand for more beaters, but little demand for rehabbed houses AND prices will surely drop because there is plenty of “fixed-up” supply…
The point is this. The LAST THING you need to care about when you’re “Comping” a house is the price. And yet, it’s usually “the only thing” most real estate investors focus on.
Fact is…everything else if more important…
Now that you have a great “plan” to evaluate deals and properly “establish” comps.
Don’t you think it’s time to go get a deal you can evaluate?
Courtesy of Rob Swanson