DEAL DYNAMICS

PL AY IN G TO WI N
The Ultimate Guide to
Comping and Underwriting

By Pace Morby
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Table of Contents

Understanding the Local Market 5

Determining Property Value 7

Creative Financing & Negotiation 12

Evaluating Expenses & Analyzing Income 15

Types of Properties & Exit Strategies 18

Your Underwriting Guide 21

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Your Intro to
Underwriting
Real estate investing can be lucrative, but
to be truly successful, you must master
property comping and underwriting.

When you’re out there, trying especially interested in the

to figure out what a property’s homes that recently sold.
worth, you can’t just throw out
a random number and cross Comping is a technique every
your fingers. successful realtor knows like the
back of their hand.
That’s not how seasoned
professionals operate. It’s Real Estate Investors jump
all about blending research, straight to the realtor’s MLS
expertise, and a touch of market system, and that can be a decent
intuition. This is where the power way to track homes. But, don’t
of comparables, often referred limit yourself.
to as “comps,” truly shines.
They provide the data-driven Get to know your local real
foundation to make informed estate agents and county
decisions with confidence. assessor’s office. These folks
have the intel, the secrets
Comps are what you do when of what’s happening in the
you look around your property’s neighborhood when you need
neighborhood and find homes more information.
that are like yours in size, age,
and features. You should be If you’re the DIY type, don’t fret.

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 There’s always Zillow, Redfin,
and a dozen other online
platforms. Filter, search and
compare – you’ve got the whole
world at your fingertips. But
remember, it’s not just about
gathering data; it’s about
understanding it.

The market shifts and turns so the

rule of thumb is to stick to comps
within 3 to 6 months.
Now, when you hear
underwriting you might think
that we’re talking about the kind
of underwriting that banks and
mortgage lenders do when they
gather a million different pieces
of documentation to see if you
qualify for lending.

When I use the term

“underwriting,” I’m basically
talking about digging deep
into the financial details of a
property. It’s like doing a health
check to see if this property is
going to be a good investment
for the long haul. We’re not just
looking at its current value, but
also how it might perform in the
market down the road. And just
to be on the safe side, I always
map out a solid exit plan. This
way, we’re prepared for the long
game and can manage our cash
flow effectively.

So, let’s walk you through the

process of underwriting and
comping step-by-step, ensuring
you get the most out of your
investments.

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Understanding
the Local Market
Knowing the local market inside-out
helps with making informed decisions.

Informed decisions = profit Comparing a fixer-upper to a

move-in ready property? They’re
So, let’s talk shop – finding the not exactly apples to apples.
right comps: However, you can certainly use
If you’re selling without a realtor, comparables to determine the
as in a “for sale by owner” After Repair Value (ARV) if
(FSBO) scenario, you need to you’re considering renovations
be on your toes. It’s essential to or planning to flip the property.
know which areas are in demand
and which aren’t. Make sure to Comparing a hot property with
thoroughly research listing sites, one from a down-and-out area?
cross-check information, and You’re just asking for trouble.
even consider taking a drive
around the neighborhood to get Step one in finding your perfect
a feel for the area. properties and analyzing the risk
Get familiar. is to find properties that match
the one you’re considering. Stay
When it comes to finding a in the same neighborhood where
golden comp, location is the #1 possible. Look for the same bed/
priority. After that, it’s size, age, bath count and similar square
and features. If you’re valuing a footage.
swanky 3-bedroom apartment
downtown, don’t compare it Then, find a few more.
with a ranch in the suburbs. So,
a word of caution: not all comps Once you’ve done
are created equal.
that, you can evaluate
You’ve got to watch out for how these properties
the bad apples. A mansion really compare to
compared to a studio? No way.
each other.

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Tasks:

Master the Art of Comping: Familiarize

yourself with the process of finding comparable
properties (“comps”). This is vital in determining
a property’s worth. Start by understanding the
local real estate market, looking into recent sales,
and focusing on properties similar in size, age,
and features.

Diversify Your Research Sources: While the

realtor’s MLS system is a popular way to track
homes, broaden your horizons. Engage with local
real estate agents and access county assessor
records for more localized insights. Leverage
online platforms like Zillow and Redfin to get a
holistic view of the market.

Stay Updated with the Local Market: Dedicate

time to comprehend the nuances of the local
real estate market. This means not just relying on
data but truly understanding it. Use the freshest
comps, ideally from within a year, unless the
market has been notably stable. Being updated
aids in making informed decisions, which leads to
potential profits.

Be Selective and Critical in Comping: It’s not

just about finding properties; it’s about finding
the right properties. Ensure you are comparing
apples to apples – same neighborhood, similar
bed/bath count, and square footage. Be cautious
of anomalies or “bad apples” that could skew
your evaluations, such as comparing a fixer-upper
with a move-in-ready property.

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Determining
Property Value
Now, as hard as you may try, you’re bound to find similar properties
that don’t match your bed/bath count, square footage or year
built or renovated perfectly. Because of that, find at least 3 similar
properties and assign them different weights to give you a better
estimate of how much you can charge per square footage.

(You can use the table below to give you an average of what
you can charge per square foot to make sure you’re getting your
money’s worth).

% Weighted
Address Date Sold Sq. Ft. Sales Price $/SF % Weighted
Sq. Ft.

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Here’s an example of how to fill out the table.

Let’s say you found a property at 123 North S. St. in Phoenix. It’s
a 3 bed 2 bath 1,900 sq. ft. built in 2011 and sold 30 days ago for
$215,000.

Then you find the following addresses you’re hopping

to use as comps:
House A on Fox St.) 3/2 in the same neighborhood sold within the
past 3 months with 1,800 sq. ft. for 450,000.

House B on Second St.) 2/2 in a different neighborhood across a

major intersection closest to a school that was renovated and sold
in 2022 for 425,000 with 1,700 sq. ft.

House C Cliff St.) A 2/2 in the same neighborhood with 1,100 sq. ft.
and sold 30 days ago for 50,000.

Fill in the Blue cells in the table first:

% Weighted
Address Date Sold Sq. Ft. Sales Price $/SF % Weighted
Sq. Ft.

House A 2023 1,800 450,000 $250

on Fox

House B 2023 1,700 425,000 $250

on Second

House C 2023 1,100 50,000 $45

Cliff

Then, we’ll assign a different weight to each

property depending on how similar they are
to the property we’re looking to buy.

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For this example this means…

House A on Fox St.) This house is most similar to our property, so it

would most likely be valued closely to what our property is worth.
We’ll say 70% of our decision to purchase our investment property
will be based on this home.

House B on Second St.) This home is 1 bedroom smaller, in a

different neighborhood, but has sold more recently to our potential
property. Because of that, we’ll give 25% of our decision to
purchase based on House B.

House C Cliff St.) This property is located in the same vicinity

but has one less bedroom and significantly less square footage
compared to our prospective investment property. Given these
discrepancies, we’ll allocate only 5% weightage to our purchase
decision based on the price of the property on North S. St.
While it’s not an ideal comparable, its location within the same
neighborhood gives it more relevance than House B.

So, our table would then look like this:

% Weighted
Address Date Sold Sq. Ft. Sales Price $/SF % Weighted
Sq. Ft.

House A 2023 1,800 450,000 $250 70%

on Fox

House B 2023 1,700 425,000 $250 25%

on Second

House C 2023 1,100 50,000 $45 5%

Cliff

Now, we’ll multiply our weight by our price per sq. ft. and
round up to the nearest dollar.

% Weighted
Address Date Sold Sq. Ft. Sales Price $/SF % Weighted
Sq. Ft.

House A 2023 1,800 450,000 $250 70% $175

on Fox

House B 2023 1,700 425,000 $250 25% $63

on Second

House C 2023 1,100 50,000 $45 5% $3

Cliff

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After we have our In the case of our example this means:
total weighted value $175 + $63 + $3 = Fair market price at $241
of square footage, a square foot.
add the comped
value together to see $241 x 1,900 = $457,900
what your property
would be worth per For the house on North S. St., you could
square foot based on purchase this home at a price of $457,900.
your comps. You may try to negotiate that price down a
bit with the seller, but if they’re dead set on
that price in this market, you need to work
with them to get up to their price.

$457,900 is a fair market price, so paying

that much for it is fair to your seller.
Remember, the point of doing all this is to
help you develop an exit strategy and get
the most bang for your buck.

All of this is not just about data, it’s about

strategy.

This is why, after identifying a few

comparable properties, it’s crucial to
evaluate your exit strategy for profitability.
It’s a mistake to assume a one-size-fits-all
approach will work for every property.

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Tasks:

Identify Similar Properties for Comparison: Even if

they’re not identical in features (like bed/bath count
or square footage), identify at least three properties
similar to the one you’re interested in. They will serve
as comparatives to determine the price per square foot
you should aim for.

Fill in the Comparative Analysis Table: Start by

filling in the details of the properties you’re comparing
in the blue cells (Address, Date Sold, Sq. Ft., Sales
Price, and $/SF).

Weight Your Comparisons Based on Similarity:

Assign weights to each comparable property based
on its similarity to the target property. For instance,
properties that are more alike should have a higher
weight (like House A in the example).

Calculate the Weighted Price per Square Foot:

Multiply the weight by the price per sq. ft. for each
property. Add up these weighted values to determine
a fair market price per square foot for the target
property.

Reassess Your Exit Strategy with Every Property:

After you’ve analyzed comparable properties and have
a better understanding of the market price, revisit and
determine your exit strategy for the investment. Don’t
rely on a one-size-fits-all approach; each property may
require a different approach based on its price and
market conditions.

Remember, while data is a powerful tool in real estate, it’s also

essential to combine it with a strategic approach for every
investment opportunity. More of these tables are available in the
“Underwriting Guide and Workbook” in Chapter 6.
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Creative Financing
& Negotiation
Now, with all this mention of maximizing
profits and minimizing costs, you’re probably
thinking of the best ways to own a property
without burning through your cash.

Depending on the amount of equity a seller has in their property, their

individual personal circumstances and amount of time they need to
close, you can utilize one of these creative financing techniques:

Subject-To: Think of this as taking over someone else’s mortgage. The

deed is yours, but the loan stays in the seller’s name. So, while you
control the property and reap the benefits, you don’t have to take out
a traditional loan in your name. Clever, right? It’s the stealth approach.
You’re basically telling the seller, “Hey, let me take that property
burden off your hands.” And who doesn’t love being the hero?

Lease Agreements: Now this one’s like dipping your toes in the water
before taking the full plunge. It’s a ‘try before you buy’ deal.

You lease a property with the option to buy later on. The cool part? A
portion of your rent can sometimes go towards your future purchase.
So, every month you’re chipping away at the price tag while still
holding onto your cash.

Owner Financing: This is the golden handshake between you

and the seller. Instead of getting tangled up with banks, the seller
finances your purchase. It’s a win-win because they get to sell their
property at a price they want, and you get flexible payment terms
tailored to suit your wallet.

Plus, no bank means no crazy hoops to jump through, no credit

checks and no cash for a down payment. Keep in mind, though, it’s
all based on trust and contracts. You’ve got to ensure you keep up
your end of the deal. Your reputation is everything in this game.

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Wraparound Mortgages (Wraps): Picture Creative financing can
this – you’ve got a sandwich, alright? The be a tool for many
original mortgage is that juicy patty in the that just might be the
middle, and the wrap is, well, the bun that tool that takes a real
envelops it. estate empire to the
next level.
With a wrap, you’re essentially creating a new
mortgage that “wraps around” the existing You can see a case
one. This is how it works: you buy a property study of how to do
(typically through subject-to) and continue that by scanning the
paying its existing mortgage while selling the QR code below.
property to someone else.

The new buyer pays you based on this new

wraparound that you can sell to them mostly
commonly through owner financing or lease
agreements. You get to pocket the difference
between what you owe and what the buyer
pays you. Plus, if the buyer defaults, the
property comes back to you, and you still
have equity they paid into it.
After all, why settle
The wrap method means you don’t have for conventional
to go through the hurdles of traditional when you can
financing or assume the original loan. And for go creative and
the buyer? They get into a property without maximize those
traditional financing, which is a pretty sweet profits? But you can
deal if credit issues are haunting them. only use creative
financing if you
So, next time you’re eyeing a property and understand how
thinking about how to finance it, remember it works.
that if you can underwrite and comp a
property, you can finance it creatively and Because
put a lot less skin in the game because
remember,
creative financing allows you to secure
deals without using your own cash, in this game,
running your credit and without ever knowledge isn’t
having done it before. just power –
it’s profit.

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Tasks:

Research and Understand Different Creative

Financing Methods: Become well-acquainted with
the various techniques mentioned such as Subject-To,
Lease Agreements, Owner Financing, and Wraparound
Mortgages. Each method has its advantages and
potential risks, so you need to thoroughly understand
them before utilizing them in your real estate
endeavors.

Evaluate Your Potential Deals: Before diving into

a deal, evaluate the property’s equity, the seller’s
circumstances, and the timeframe in which they’re
aiming to close. These factors will influence which
creative financing method is most appropriate for the
situation.

Prioritize Building Trust and Reputation: Many

creative financing techniques, especially Owner
Financing, are based on trust and contracts. Ensure
you uphold your end of agreements and always
act with integrity. Building and maintaining a solid
reputation in the real estate sector can lead to more
favorable deals and partnerships.

Educate Yourself Continuously: Knowledge is

key in the real estate world, especially when using
unconventional methods like creative financing. Stay
updated with the latest trends, regulations, and market
shifts. Consider attending seminars, reading books,
or taking courses to expand your understanding of
creative financing and other real estate techniques.

Assess and Reassess Your Strategy: After using a

particular creative financing method, take time to
evaluate its effectiveness. Did it maximize your profits?
Were there any unforeseen challenges? This reflection
will allow you to refine your approach for future deals.
Always keep an open mind and be ready to adapt to
the ever-changing real estate landscape.
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Evaluating Expenses
& Analyzing Income
This is going to be where you understand
if the value of what you’re hoping to pay
for will actually pay off.

Here you can Buying any investment property isn’t just

about having the cash or pulling some
envision all of
credit magic. It is about understanding what
your hard work goes in and what comes out.
paying off.
By that, I mean expenses and income.

EVALUATING EXPENSES:
You see, expenses are like termites. If
you’re not keeping a vigilant eye, they’ll
eat away at your profits.

I’ve heard enough stories of people who

jumped into a deal, only to later realize
that the costs of maintaining or renovating
the property were way higher than
anticipated. And trust me, that’s a surprise
you don’t want.

So, before you even think about sealing the

deal, map out all potential expenses: repairs,
utilities, insurance, property management
fees, the whole nine yards. The little things
add up and can dramatically affect your
bottom line.

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ANALYZING INCOME: But, real estate,
Now, this is the part everyone loves. like life, isn’t always
about the straight
But here’s the catch – your income isn’t and narrow. It’s not
just about the rent you take in each month. just about finding a
Think bigger! property; it’s about
finding the right
Consider the property’s potential for strategy to make
appreciation and future profits to be had the most of that
when refinancing. What about auxiliary property. It’s about
income like parking fees, laundry units, or the art of the deal
even storage facilities? and the science of
strategy.
The trick is to strike a balance. Your
incoming cash flow should comfortably It’s essential to
cover your expenses, with a decent chunk understand the
left for your pocket. After all, isn’t that the importance of
dream? comping and having
an exit strategy.
And if you’re sitting there wondering It’s the next step
about mortgages, credit scores, and down in your journey to
payments, let me remind you: it’s not always becoming an
about how much you have or owe. It’s about expert investor.
leveraging what you know.

In essence, it’s simple math, but it’s crucial.

By understanding and mastering the
balance between expenses and income,
you’re setting yourself up for a world where
financial barriers don’t dictate your real
estate journey.

Instead, your knowledge does.

So, arm yourself with knowledge in the
workbook below. I’m giving you my guide
that I use for evaluating profits after costs
of liens, renovation, purchase costs, payoffs,
utilities and so much more.

You might have found a potentially

promising property, you’ve run the numbers,
and the math checks out. Great!

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Tasks:

Detailed Expense Evaluation: Before finalizing

any deal, ensure that you have a comprehensive
breakdown of all the potential expenses related
to the property. Complete the worksheet for your
property in the workbook.

Broaden Your Income Perspective: Beyond

the monthly rent, consider all potential avenues
of income related to the property. Look for
opportunities for appreciation, refinancing
benefits, and auxiliary sources like parking,
laundry, or storage fees. Every additional income
stream enhances the property’s value. Complete
the worksheet for your property in the workbook.

Maintain a Positive Cash Flow: At its core, the

success of your investment hinges on this simple
equation: your income should not only cover
all your expenses but also leave a significant
margin for profit. Aim for a buffer or a cushion to
account for unexpected costs or market shifts. I
call it the war chest.

Prioritize Knowledge Over Financial Assets:

Understand that real estate investing is not
purely about the capital you can invest but,
more importantly, the knowledge and strategy
you employ. While having funds is beneficial,
understanding the dynamics of the market,
having a well-informed strategy, and knowing
how to navigate challenges are equally, if not
more, crucial.

Incorporating these action items can help you in

making more informed and profitable decisions in
your real estate ventures.
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Types of Properties
& Exit Strategies
Now, before you get too excited about getting
some experience under your belt, you need to
understand why comping is so important.

When you compare similar Based on the comps

properties you can accurately
you did before…
determine the value of a
potential investment.
Considering your property’s
value and your big dreams, jot
But here’s the thing to keep in
down your dream selling price
mind: jumping into the game
and the least offer you’d accept
isn’t enough. You need to know
without regret.
when to jump out. That’s what I
call your ‘exit strategy.’ And trust
Then, imagine three scenarios:
me, it’s as important as your
• The market skyrocketing
entrance.
• You suddenly need a
pile of cash
A well-crafted exit strategy helps
• The neighborhood is not
you enter and exit investments
a sought after place to live
while minimizing risk and
anymore
maximizing profits. You should
always enter a property with an
How would you react and would
exit strategy in mind. Know what
you treat this property any
you’re aiming for from the start.
differently in the buying process
You do this because deciding
based on any of these three
when to sell shouldn’t be based
things happening?
on how you feel. It should be
based on facts.

So, here’s how you find your exit

strategy.

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 Imagining And because those scenarios can change
these scenarios the way you’d approach a property, then
can help you they should be top of mind before ever
diving into it as a potential investment.
determine your
sweet spot for The other things to consider besides profit
profit in your when weighing an exit strategy are also:
exit strategy • How much time you want to spend
and where you’d maintaining the property
be if the worst • How much experience you have in
case scenario real estate investing
happened and • How involved you want to be with tenants
you end up only • If you need the tax benefits of
owning another property
breaking even.
If you want to be involved with tenants’
needs, remodeling and maintaining
properties for long-term profit, then you
might find yourself using the long-term
rental exit strategy. But if you’re new to real
estate investing, you may just want to
make an assignment fee and sell the
property to someone else.

In general, the most common exit

strategies are…

Flipping: It’s the real estate version of buy

low, sell high. Give the place a makeover
and sell it for those big bucks.

Renting: Why not have someone else pay

your mortgage? Rent out that place and
enjoy the monthly income.

Wholesaling: Lock in a deal and then pass it

onto someone else. You make money, they
get a property. Win-win.

Even though these strategies are common,

they may not be the best option for the
property you’re looking at, because if
you can find properties that you can own
without ever putting money into them,
then wouldn’t that maximize profits for
every deal?

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Tasks:

Always Have an Exit Strategy: Before you finalize

any real estate deal, have a clear exit strategy in mind.
Know the best-case scenario for profit, the least you’re
willing to accept, and how you’d proceed in various
market conditions. Entering an investment with this
foresight can mitigate risks and guide your actions.

Assess and Reassess the Market: To craft a

flexible exit strategy, consider three potential
market scenarios: a thriving market, a personal
financial emergency, and a decline in the property’s
neighborhood appeal. Your reactions and decisions
in each scenario should be a guiding factor when
initially evaluating the potential investment.

Weigh In Other Considerations: Beyond profit, assess

your willingness and capacity to maintain the property,
deal with tenants, enjoy tax benefits, and your overall
experience in real estate. These factors can influence
the nature of your investment (long-term rental vs. a
quick flip) and determine if a property aligns with your
investment style and goals.

Understand Different Exit Strategies:

Familiarize yourself with the various common
exit strategies available.

Maximize Profits: Explore investment opportunities

that require minimal upfront costs or ongoing
investments. Properties that can generate profit
without significant personal investment amplify
the potential return on investment, making them
particularly attractive options.

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Your Underwriting
Guide and Workbook
Accurate comping and underwriting can
be the difference between a successful
investment and a missed opportunity.

This workbook provides a roadmap to mastering the skill, setting

you on the path to success in real estate investing.

To help you on your journey to generate profits, I’ve included copies

of the tables and lists mentioned in previous chapters to use again
and again.

Weighted Comping Tables

Address of potential property:

% Weighted
Address Date Sold Sq. Ft. Sales Price $/SF % Weighted
Sq. Ft.

Fair market price =

Address of potential property:

% Weighted
Address Date Sold Sq. Ft. Sales Price $/SF % Weighted
Sq. Ft.

Fair market price =

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Address of potential property:
% Weighted
Address Date Sold Sq. Ft. Sales Price $/SF % Weighted
Sq. Ft.

Fair market price =

Address of potential property:

% Weighted
Address Date Sold Sq. Ft. Sales Price $/SF % Weighted
Sq. Ft.

Fair market price =

Address of potential property:

% Weighted
Address Date Sold Sq. Ft. Sales Price $/SF % Weighted
Sq. Ft.

Fair market price =

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Evaluating
Expenses and
Analyzing Income

If you want to learn more about

underwriting, and want it broken
down into bite sized pieces, I’ve put
together a more comprehensive guide
in Top Tier Underwriting. We’ll show
you how to comp for ARV, single
family properties and even
multi-family prospects.

And, if you’re looking to further

enhance your underwriting skills,
consider joining SubTo for guidance
on all things underwriting and creative
finance. You can also connect with
the largest and most active real estate
community in the world!

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