Mastering CMAs – Property Investor’s Guide to Top-Notch CMAs: Our discussion focuses on the significance of CMAs in making informed decisions, ensuring investors and agents alike understand the intricacies of real estate data. Gain knowledge from experienced professionals on accurately assessing property values, optimizing investment returns, and navigating the real estate market with precision. We share expert insights into cost market analysis (CMA) – ideal for both seasoned investors and newcomers, we provide valuable tips and strategies for successful real estate investing, emphasizing the critical role of comprehensive market analysis.
Brett
0:00:39 – All right, welcome back to another episode of It’s 5 O’Clock Somewhere Real Estate Podcast. We’re not experts, we actually know what we’re talking about. Today we’re actually gonna get into something that irritates the crap out of me. And that is CMAs. I know Richard got excited when I said CMA, he thought I was talking about the country music awards, but no, we’re talking about cost market analysis, real estate data. For those of you who don’t know Richard, he’s our producer. He’s from Britain, where there’s no such thing as comedy. I’m sticking with that. Cause you don’t have a mic. So I’m going to rip you up.
Jeff
0:01:09 – Cause you know, country, not much country in thatr area probably.
Sponsorship
0:01:15 – We are sponsored by Title Assurance and Escrow, a title company here in Cordova that does all of our closings, title work, escrows, and we only use Title Assurance and Escrow. That relationship is very important because we can get things done for our investors quickly and easily. So, to speak with Title Assurance and Escrow, call 901-737-3332. Ask for Chris or April.
Brett
0:01:39 – So we’re going to talk about cost market analysis. It’s a data that we put together to help investors understand what they’re looking at. And I put my CMA up against any agent in town. I think we do them right. We do them probably better than anybody else. And we’ll get into that, how we do them, why these things are so important. But before we get into that, I want to introduce a very good friend of mine Larry Hunter who is the founder the operator the CEO The maintenance guy the garbage man the cleaning crew for touch by an angel charity, which is a group I’ve been involved with since what 2009 it’s been that long They could’ve been a little long my daughter about five now. She’s 17. Oh my goodness. I’m not getting older. Well area’s So I got involved with Larry back in 2008 or 9 somewhere in there first thing he ever did which caught my attention He told me hey by the way I’m gonna be out at Highland and Park for Mother’s Day I’ll be there on the corner if you want to come by and say hi or come say hello So I drove by there and this crazy man’s out in the middle of road the signs his honk of your mother if you honk At the light he brings you you brought him a flower and something else some gifts and was getting nothing in return for it He was just doing it out of the kindness of his heart. And then the next event, we had a huge food giveaway where he had, I remember this, this is a big event, he had like four or five semi-trailers of food donated. We had boxes and we must have had a mile long of people in line that were coming through and we’re giving them boxes of honey bread and chips and household goods, just giving them away. And again, you got nothing for that other than helping people that need help. So I got real intrigued with what Larry was doing. I got involved. We try to do as much as we can. We help raise money for bikes that he gives away at Christmas time, which this last Christmas I had a ball. That was really a lot of fun. So I wanted to highlight, Larry, what he’s doing here in Memphis, because a lot of the investors that are investing in Memphis, you need to know that there are people like this in our city that are doing good things for folks that need help. He’s helped homeless people find places to live. You’ve helped a homeless guy that I sent to you, got a place to live, and then when he got a job, you helped him get some furniture. You’ve also got homes that you’ve converted to homeless shelters that you run. So Larry needs a lot of help financially with running all of this, but 99.9% of every dollar he gets goes right back into helping the community. It’s really amazing. One of the only charities I know of that actually does what their goal is, and that is to help people. There are a lot of charities and nonprofits that take half of the money that come in and it goes in somebody’s pocket and they get company car and they, you know, company apartment or whatever. They’re not truly helping the community. So tell me a little bit about yourself. Tell a quick story about how you started because you used to be a Memphis bus driver.
Larry
0:04:18 – Yes, first of all, I’d like to say thank you to the ones that are listening. Thank you to everyone that’s here. I got started actually driving a matter bus. I started off with bringing lunch to work and I realized I was giving my lunch away. So I started fixing extra lunch and I maybe fixed about 15, 20 lunches and I would get on the bus because I know I’m going to run into somebody that’s hungry. So when they get on the bus I would give them, serve them lunch and many times they would get on the bus and didn’t have money I would pay for them to ride the bus, and when it was hot outside, I would let them ride the bus just to stay out of the hot weather. And during the winter, my boss thought I was making a lot of money because he’s seen my bus was always crowded with people. But he didn’t realize half of them I was paying to let them ride free just to keep warm. And that’s how I got started. And I couldn’t come up with a name. I started off with Sober House, and I was trying to find a name for it and a guy got on the bus, he was kind of drunk, and he said, I wish there was a place where I could get sober. And I started off with the name Sober House, then I changed the name several years ago to Touched by an Angel because I was feeding one family in one neighborhood and the father came out and started crying and that really touched me. He said, I feel like I’ve been touched by an angel so that I changed it to Touched by an Angel. So coming from a very large family, I love helping people. My mother had 21 children, and when my father died in a car accident, there was 15 kids at home. So, and I know what it feels to be without. And I said, one day, if God ever blessed me, I’m gonna try to help as many people as I can. And sometimes it’s a challenge because you’re putting most of your money into it. And a lot of people ask me, why do I put so much money into it but I get joy out of helping people and I just believe this year is going to be a better year.
Brett
0:06:08 – Absolutely it’s going to be a good year because we’re going to help you just getting involved we’re going to try to drum up some financial support some other folks I’ve been hanging with you for 14-15 years now. Yes sir. And it’s a struggle because let’s face it a lot of people don’t really care right they want to give money around Christmas time to make themselves feel better, but they really truly don’t give a crap about what’s happening in these neighborhoods. I’ve met with some members of Shelby County, Jeff and I have, and some other folks, and it’s unfortunate, but these people in power don’t care either. It’s more about feathers in my cap and re-election campaigns instead of doing what’s right. You do what’s right, regardless. You do what’s right. When you don’t have the money, you still go out there and do it. And Larry called me three, four days before the bike giveaway for Christmas. And they were, how long, $1,600, $1,700, 17 bikes short. So I picked up the phone, I called Jeff, we called multiple people, and within that same day we got the money we needed to finalize the bikes we needed. But then the day before, you called me and said, we’re still short. Jeff jumped in, called his dad, his brother, and collected a balance of some more money for you. And we were able to have a wonderful bike giveaway, a lot of happy kids and in neighborhoods where parents couldn’t afford to buy them that for Christmas and some of those kids didn’t have a Christmas so you were able to give that to them and that was very commendable. I love what you do. Thank you. I’m always gonna be involved. We’re gonna get guys like Jeff involved and Nick he’s kind of you know he lives in a fancy neighborhood in Germantown, he probably wouldn’t care. But we’ll get him involved too.
Larry
0:07:36 – Well a lot of people don’t know that we have a GoFundMe as well. Is it okay to…
Brett
0:07:40 – Yeah, yeah. No, I want you to plug yourself shamelessly as much as you can. Give out your website, your GoFundMe, your cash app, everything.
Larry
0:07:47 – Well, the GoFundMe is called touchedbyanangelman.com, T-O-U-C-H-E-D by an angel man dot com. And also we have a cash app called Money Sign TBT 1961 as well.
Brett
0:08:05 – Excellent. I would encourage any of our listeners, if you really want to help somebody, truly help people, then connect with Larry Hunter. Donate a few dollars to him. Help him out, because there’s a lot of places you can give your money away to. And let’s face it, if you look at their books, $0.40 of every dollar you give to them goes to the charity. The rest of it, they’re paying a CEO and staff and Larry goes out and everybody that works these events are volunteers. You don’t pay anybody. No. No one comes expecting a paycheck. They all show up to volunteer their time. I brought my wife for the first time to one of your events and she just was in love. She was like, this is the most amazing thing I’ve ever seen in my life and she always now wants to participate in that.
Larry
0:08:44 – Thank you so much.
Brett
0:08:45 – So thanks for being here and I think every once a month we need to bring you back in.
Larry
0:08:50 – Yes.
Brett
0:08:51 – Talk about upcoming events. Talk about the bike drive that we’re setting up now for next December. As Jeff said, he wants to give bikes to every kid, not just a few. We’ll make you a full-time sponsor of the show and get you on our website, if that’s okay. So, if you could, your website?
Larry
0:09:05 – touchedbyanangelman.com.
Larry
0:09:10 – So, we can add that, and we can look it up. Okay. And also, I would like to say for every lady on Violence Time Day, we’re going to be on the corner of a park in Highland. I’m going to give away 500 gifts to the first 500 ladies. If your boyfriend forgot about you, touched by an angel, haven’t forgotten about you. If your husband accidentally forget, come to Park in Highland in Orange Mount. You might have to wait in line two or three blocks, but I promise you, we have a gift for you. This is sounding more like that SNL skit, what was his name, the ladies man? Yeah.
Brett
0:09:45 – That’s what this sounds like. Sounds like Larry’s interviewing for some future wives.
Jeff
0:09:49 – It’s not Pastor Larry. It’s Player Larry.
Brett
0:09:52 – By the way, you’ve got a baby on the way.
Larry
0:09:58 – Yes.. I’m going back next month on March the 4th. I’ve got an interview and me and my wife are going to hit the plane and come back to America so she can have the baby.
Brett
0:10:06 – Oh, that’s awesome.
Jeff
0:10:07 – Boy or girl?
Larry
0:10:08 – It’s going to be a girl.
Larry
0:10:09 – All right.
Jeff
0:10:10 – Congratulations.
Larry
0:10:11 – I’m going to spoil her riding. Thank you, brother. I appreciate you, man.
Jeff
0:10:14 – Brett, let’s talk about Fenwick for a minute before you dive into the CMA because it’s going to have a lot to do with the CMA because I went out there and took those pictures for you. Yeah. And in your number, you came back to him. Carter seemed a little high. Well, I went back out there and I drove that neighborhood. I drove four or five blocks every direction. You go down that street and turn right and there’s a ton of homes like that completely remodeled. Really nice. I’m with you, but nothing has sold. So there’s no there’s no comps. But I looked at some of the houses in that two sixty to seventy five 260, 275 range. I mean they were just pimped out. This one as you saw in the pictures, I don’t even think it’s rent ready in my opinion.
Brett
0:10:57 – It’s not. I adjusted, and I emailed him again. It’s all dated. I adjusted things because there’s a house down the street listed at 219, very comparable. And I sent that to him to show him, look, you know, yeah, the numbers show that they can get this for it, but the reality is because on across the street is the back wall of Chickasaw Gardens neighborhood.
Nick
0:11:13 – That’s what I was gonna say Finwick is a tricky spot right because you’ve got some chickasaw gardens right there and Finwick is not chickasaw gardens.
Jeff
0:11:27 – Yeah, I actually tried to pull a little CMA on it myself, and I was having a hard time finding comparables..
Brett
0:11:43 – Yeah, no, it’s difficult that that is a very difficult spot, but you’ve got you sent him yesterday Just seemed a way too high. I was thinking more around 200, 215, but you adjusted that today to that number. I adjusted it to him today, but I sent him a link to this house that’s listed, and it’s in good shape. It’s 219. It’s very comparable. So I want him to know that, yes, on paper, the numbers say you can get 275 for this house all day long based on the CMA and data, but I wanted him to understand that this little pocket sits in the middle of a lot of high-end stuff, so it’s very difficult to CMA a property like that.
Jeff
0:12:08 – What I’m saying is those pictures didn’t do it justice. You’re going to have to, that house is at its very best to get 220. He’s going to have to, he didn’t even paint it.
Brett
0:12:18 – He’s getting it cleaned today, and then once that’s done, I’m going to have to, I’m going to tell him, look, we’re going to have to do some interior paint, trim, walls, fix the fencing.
Jeff
0:12:24 – None of that is carved or anything.
Brett
0:12:26 – Yeah, there’s a lot that needs to be done to it. I don’t know what he put in an offer in on this property. He hasn’t told me that. At this point, I’m going to tell him, look, you’re going to have to come down to low twos. That’s a 275 is not going to work. Now, if you went down the street a block and turn right, same neighborhood and same size homes, but they’re all just architectural shingles. You can tell they’re completely pimped out, completely remodeled, but I can’t find a sale or a listing in there that shows me anything. So I can’t justify the 275 number.
Jeff
0:12:55 – Yeah, I’m with you. All right.
Brett
0:12:56 – So, you know, let’s go into a CMA. I want our listeners and our investors listening and even agents.
Jeff
0:13:01 – Especially.
Brett
0:13:02 – If you do this, I apologize. I’m not attacking you. I’m just trying to help people understand that this isn’t rocket science, but there’s a method to making it work. And a cost market analysis is something pretty simple. It is basically taking an area around a subject property and comparing the recent sales, active listings, to try to determine what the value of that house would be. Now we’re in the investment game, so we also go a little deeper. We deal with rent comps and stuff like that. So I want to talk about it. What’s the very first
Brett
0:13:32 – thing, Jeff, that we should look at when we pull our CMA data? We go into Paragon, we We do a what we go in the pair on we put a wide circle of data. We get our spreadsheet out and get it set up What’s the first thing we do?
Jeff
0:13:46 – The first thing is I think the sold price per square foot your your magic number there.
Brett
0:13:49 – One thing What about are?
Jeff
0:13:504 – Well? Yeah, I mean we neighborhood area and they check the neighborhood. Oh, yeah, you got to get that I mean if it says 726 C. It’s got to be 7-T, not 726-A or B.
Brett
0:14:03 – Now there are agents, a lot of agents do this. I’ve looked at CMAs and I’m just kind of, I had one deal that I took over from an investor that got in too deep upside down based on some bad data an agent gave him. I looked at the CMA and she had stuff from literally a mile away, near downtown. Oh wow. Well you know as well as I do, downtown you can have $30,000 square foot homes, five bedroom in with this mix and told him the house would sell for 200 grand. We sold it for 149,000. And that was high. For me, when I pulled the CMA data, the first thing I do is I get rid of everything that is not that neighborhood code. 726C, for instance, you zero in on that specific neighborhood. Now, there aren’t any comparables that meet up with the apples to apples comparison. Then you can expand out to the next couple blocks over.
Jeff
0:15:01 – Yeah, except one block behind Fenwick where it goes from 200,000 to 2.1 million in Chickasaw Garden. But I mean, like you said, all you got to do is use a little common sense. I mean, if you’re not lazy, you can get a map out and look at it.s
Brett
0:15:17 – Well, that’s why I tell people, if you’re not from here and you’re talking to an agent about getting into investing in Memphis, the first thing you need to realize is that we say block by block, street by street, that is actual fact. And Fenwick is a perfect example of that because you literally can walk 100 yards in front of this house and look at a $1.2 million property. You can go down the block, two blocks down the street to the right and you’re looking at $400,000 homes.
Jeff
0:15:42 – The entire city of Memphis is like that. Century Street, 200,000. One block over, homes at Poplar, 30,000.
Brett
0:15:51 – 30,000 at best, and that’s on a good day.
Jeff
0:15:53 – That’s every neighborhood in the city just about.
Brett
0:15:55 – What you should do in a CMA is you go down and you pull the data. Number one, don’t look at Zillow, please. Because if Zillow says it’s worth 100,000, that means it could be worth 80, it could be worth 150. That is a broad basis that they pull averages across the city. Now, in a city like Dallas, that may work, because you may have a four or five-mile area where things are pretty consistent. But in Memphis, like Jeff said, it’s literally block by block, street by street. So the neighborhood code is certainly important. So your subject property is 726C, so we eliminate anything that’s not 726C. The next thing we’re going to look at is the sold price per square foot. I don’t care what it listed for. All I care about is what it’s sold for. That’s all that’s important. The sold price per square foot, and then you’ve got to eliminate four bedrooms, five bedrooms. If you’re dealing with a 3-1, you’ve got to deal with 3-1s and 3-2s. You can’t have any four bedrooms, five bedrooms, because an appraiser is going to completely change how he evaluates that property based on, even if it’s the same square footage, but if it’s a four bedroom versus a three bedroom, there’s a dynamic change in how they evaluate that property. So you can’t use that either. 726C is an area, all right? It’s a map code.
Jeff
0:17:06 – So… It’s through the multiple listing service. They have their own map codes.
Brett
0:17:11 – So let’s say 726C may encompass a five block radius, right? So if you can pull enough data in that five block radius and determine the values of 100,000, you’re pretty much spot on. But if you go into 726D and 728A and start pulling crap into that data, it’s going to be skewed and inaccurate. And I get a lot of investors who come to me after the fact, after they’ve been burned, and I don’t think the agent was intentionally trying to burn them. I just think the agent didn’t understand what they were doing with the data and gave them inaccurate data, and they went on that data and got burned and lost money.
Jeff
0:17:48 – Sometimes you just have to do a little bit more research, too. So if I can’t find any comparables in 726C, I’m not just going to start listing 726A and B. I’m going to pull a map up. I’m going to get out there and I’m going to drive the area. You’ve got to get the area geographics. Because when you get from 726B to C, it may just be another block over, but the houses are still comparable. They didn’t jump from 200 to 3 million.
Brett
0:18:12 – That’s right.
Jeff
0:18:13 – If you just use a little common sense and you’re not…
Brett
0:18:16 – That’s all it is and work ethic. I think that some of these agents do these really bad CMAs simply because they’re lazy. They don’t want to take the time to dig into it. It’s kind of a quick data pull, add the numbers, divide it by houses, oh wow, this house is worth X.
Jeff
0:18:28 – I don’t know why the Memphis Area Association of Realtors does not teach a class on this.
Brett
0:18:32 – They wouldn’t do it anyway, it’s too much work for them.
Jeff
0:18:35 – I mean, because that CMA they have in the Paragon MLS system is, like you said, it’s about as accurate as Zillow.
Brett
0:18:44 – I don’t ever use a Paragon. We take the raw data. Our philosophy is you take the raw data and you put it together, you filter it down to where you’re dealing with apples and apples. That’s the only way to do it and you get accurate data.
Sponsorship
0:18:57 – You are listening to 5 O’Clock Somewhere Real Estate Investment Podcast. We are the Stamps Real Estate Company Investment Division. We are an investment team that does nothing but specialize in working with old school, middle school, and brand new kindergarten investors. We have investors around the world that we help buy, sell, and renovate property, and we’d love to work with you. Call us at 901-692-7401, or you can visit us online at mymemphisinvestmentproperties.com.
Brett
0:19:27 – I’ve had other investors and their new agents tell me that my data was off, but then those same investors will be back to me six months later telling me that I was spot on. So I’ll put my CMAs up against any investor or broker in the city of Memphis because I think we do it right. Now there are some extra steps we put into it to make sure, but that’s the point. That’s why we’re hired as agents. These investors hire us for that purpose, to guide them to a good investment. The start of that is understanding the value, marketability, and rentability of that property. And that all starts with a CMA. So we figure out bedrooms, baths, we get our average price per square foot, and then we take the highest point per square foot of an apples and apples comparison and divide it out by the square foot and get a high number. We get a high number and an average number. Average meaning this is the average sales price and price per square foot in the neighborhood. High meaning that this is what the highest sale has been in the last six months. With that, I cannot tell this client, well, your house is worth $147,000. Why, Jeff?
Jeff
0:20:26 – I got sidetracked. Say that again.
Brett
0:20:28 – This is not an appraisal. So now you take your CMA data. The next step is you look at the high, you look at the average, and you kind of go through here and you say, okay, well, here’s one that sold for $158,000. Well, let’s take a look at that house, right? Because my guy is going to buy and rent ready. He’s not going to buy and put in granite and stainless steel. Well, all of a sudden, I go look at that one for $158,000 and realize it’s pimped out. It’s got glass showers. It’s got granite. It’s got stainless steel. Well, guess what? I can’t use that high comparable because my guy’s not going to do that to the property. So what I’m going to do, I’m going to go down to the one below that and I’m going to go through those pictures and find something comparable to what my guy’s going to do so I can easily evaluate what the finished value is going to be, period. Now, did anybody not get that complicated NASA engineering formula I just put out. You look at the pictures and common sense tells you, wow, this house is pimped out. Well, my guy’s not doing that, so therefore it’s not a good comparable. Plain and simple. It’s not hard.
Jeff
0:21:27 – Why wouldn’t a guy do that?
Brett
0:21:29 – Well, he may decide to. If the number’s big enough and he can pimp it out and flip it and make 30 grand on it, why wouldn’t he?
Jeff
0:21:34 – All right, we were talking about those rent comps earlier, so is this one reason why he wouldn’t pimp it out? Because his rent’s only gonna go up, let’s see, this one you’ve got here, $1,100 to $1,200 a month. So I just need a good rent-ready rehab. I don’t want to pimp it out because I’ve spent too much money then. And I would need $1,800 a month for rent.
Brett
0:21:55 – What matters to this investor, and what I’m gonna tell this investor, is you’re gonna buy and hold this property. So therefore, I don’t care if the CMA says it’s worth $200,000. You’re only going to get $1,200 a month rent. That’s what the rent comps say, which means your rent value is 120 grand, which means you can only be all in at 120 grand. So if you spend 115 for it and put 15,000 in it, your rent value is upside down. Now, equity-wise, you’re good. But if you’re not flipping it, you want it for cash flow, you want to keep that 1% rule or better. You want to make sure if rent value is $120,000, $1,200 a month, that you’re all in at that number or less.
Jeff
0:22:32 – Go high end everything if you’re going to sell it, owner-occupant.
Brett
0:22:37 – Correct. And if you look at the data and the data says that, then that’s what you follow. And if it doesn’t work, what do you do? You toss the CMA aside and go on to the next property. There’s no slam dunk deals out there in Memphis. So there’s no reason why you shove a square peg in a round hole trying to make something work. If it doesn’t work, throw it away and go to the next one. The CMA data is so important. Number one, making sure your neighborhood code is correct and you’re not dealing with other neighborhood codes. Number two, make sure your price per square foot is accurate, that you’re average and you’re high. Then go and compare the photographs of the comparable properties to what you know your client’s going to do. If you do that, you can easily obtain a good, solid number. Now this isn’t an appraisal. We have to disclose that. But I can tell you that my CMAs, we do these with Tom all the time, every single one, he is never not appraised for what I told him to appraise for. Never, not once. That’s simply because of the process I use to evaluate that property. A lot of agents won’t. They’ll just pull the data, divide it out by the amount of houses and go, wow, this house is worth $300,000. When you and I can look at it and you know damn well it’s not going to sell for 300 grand. So listen, days on market, I don’t pay attention to that unless it’s over 60. Because if I see a bunch of homes that sold but it took 60 to 90 to 120 days to sell, then I’m going to want to drive that neighborhood and understand why. Why did it take so long for these houses to sell? It may be that it’s sitting next to a busted up liquor store. It could be a number of reasons, but I want to understand why.
Jeff
0:24:13 – Or the one I found on the market for 536 days. It was too good to be true because it was literally burnt to the ground.
Brett
0:24:20 – There you go. When you see a house that’s on the market…
Jeff
0:24:21 – A few walls left, that was it.
Brett
0:24:23 – When you see a house that’s been on market for 365 days you know that the picture they’re probably put up there was from Zillow you know 2001. Dean Howard said it need about $30,000 worth of rehab. There were two walls standing up on this lot when I pulled up near the driveway. You need to talk to Nick I heard he can do it for 30 grand. Needs about $400,000 worth of rehab. You know listen at the end of day I preach this I preach this is not because I’m trying to do a sales pitch. The guys on this team know me and know how I operate and I get very irritated with stupid people. I don’t care if you’re stupid, but at least acknowledge you’re stupid and don’t make me pay for it. So take the time to evaluate these properties legitimately for yourself as a buyer or for your client if you’re an agent and you’re listening. Make sure you’re evaluating the data, you’re looking at apples and apples, and that’s simple. You look at pictures, it’ll tell you. You can look at that and common sense will tell you if you’re comparing apples to apples. Make sure you’re dealing with the same neighborhood code. And if you do that, your numbers are going to be spot on and your investor or you as an investor, one of our clients, are going to be extremely happy because you’re going to begin to trust our data and trust our opinions and trust our guidance. And that’s the whole goal. Our goal is to have investors buy one property today, be very excited, buy two properties next month, and three properties six months from now, and then refer us one of your buddies, or your partner, or somebody else to buy from us. And that’s how our business grows. You’re never gonna grow your business if you’re just a one and done agent. You know, burn them in, burn them out.