What Is the Best Way to Determine an ARV in Real Estate Investing?
After Repaired Value (ARV) in real estate investing is critical to wholesalers and rehabbers alike because of its importance in their profit calculations.
With wholesalers the ARV gives them an indication of how much of a profit they want from a rehabber that will be buying their property.
For rehabbers, the ARV critical because of the large capital and labor investment that needs to be recovered along with a profit expectation they have in mind.
So the ARV is critical to both types of investors, so what is the best way to determine it? Usually, investors use comparable sales in a ½ mile or less radius, equivalent square footage of the property plus or minus 10%, and sales within a previous three months.
With these general guidelines a few similar properties are picked and a ARV is determined.
Some properties need even more analytical work and in these situations an appraiser may be called.
A second option is to allow a realtor to prepare what is called a Brokers Price Opinion (BPO) that does the same as the investor does above.
The realtor may be more generous with the parameters to arrive at a higher price to get a listing when the property is completely rehabbed and ready for sale.
The agent may also do what is called a Comparative Market Analysis (CMA) which uses the above criteria as well as an overview of open listings in the neighborhood so the seller can see his current competition.
All of the above methods require best guesses on the part of the preparer as to what the final ARV will actually be.
There can be no accounting for market value or specific issues in a neighborhood or community.
Because of these inherent problems, and the critical aspects of the ARV determination, I use a different method to estimate it.
I first look at the closed comparable sales and make sure they are in the same geographical neighborhood.
Next, I look at open listings knowing that these properties are not selling at these prices and they will be my competition if I were a rehabber - which I did for 25 years.
Finally, I drive the entire neighborhood and call every listed and For Sale By Owner (FSBO) property and ask what they are asking for their property.
But I don't just ask what they are asking; I negotiate to buy the property as a cash buyer who can close in 15 days.
By pressing the sellers on the telephone before seeing the property, I get very unusual results.
The more we talk the lower their asking prices go (if they are motivated) until they have hit rock bottom.
Then I start again saying the same things I did when they answered the telephone originally.
Not only does this method give an investor the real competition in the neighborhood, it often uncovers deals that he would never have seen in his usual prospecting.
If you have a problem talking to people or you think you are misleading them, don't use this technique, leave it to the pros who want to be successful in real estate investing.
With wholesalers the ARV gives them an indication of how much of a profit they want from a rehabber that will be buying their property.
For rehabbers, the ARV critical because of the large capital and labor investment that needs to be recovered along with a profit expectation they have in mind.
So the ARV is critical to both types of investors, so what is the best way to determine it? Usually, investors use comparable sales in a ½ mile or less radius, equivalent square footage of the property plus or minus 10%, and sales within a previous three months.
With these general guidelines a few similar properties are picked and a ARV is determined.
Some properties need even more analytical work and in these situations an appraiser may be called.
A second option is to allow a realtor to prepare what is called a Brokers Price Opinion (BPO) that does the same as the investor does above.
The realtor may be more generous with the parameters to arrive at a higher price to get a listing when the property is completely rehabbed and ready for sale.
The agent may also do what is called a Comparative Market Analysis (CMA) which uses the above criteria as well as an overview of open listings in the neighborhood so the seller can see his current competition.
All of the above methods require best guesses on the part of the preparer as to what the final ARV will actually be.
There can be no accounting for market value or specific issues in a neighborhood or community.
Because of these inherent problems, and the critical aspects of the ARV determination, I use a different method to estimate it.
I first look at the closed comparable sales and make sure they are in the same geographical neighborhood.
Next, I look at open listings knowing that these properties are not selling at these prices and they will be my competition if I were a rehabber - which I did for 25 years.
Finally, I drive the entire neighborhood and call every listed and For Sale By Owner (FSBO) property and ask what they are asking for their property.
But I don't just ask what they are asking; I negotiate to buy the property as a cash buyer who can close in 15 days.
By pressing the sellers on the telephone before seeing the property, I get very unusual results.
The more we talk the lower their asking prices go (if they are motivated) until they have hit rock bottom.
Then I start again saying the same things I did when they answered the telephone originally.
Not only does this method give an investor the real competition in the neighborhood, it often uncovers deals that he would never have seen in his usual prospecting.
If you have a problem talking to people or you think you are misleading them, don't use this technique, leave it to the pros who want to be successful in real estate investing.
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