What are some of the methods people use to come up with ARV (or FMV for that matter).
I am familiar with Comps and Appraisals thru the normal channels. What else is out there?
Hmmm, that should have been figured BEFORE you purchased the house. Rehabbing is risky, and you need to make sure that you WILL make a profit.
Write down the price of the house, then add to that the profit you want, then add to that what your estimate of repairs will cost, then add to that the resale costs, then add to that the costs of utilities (including deposits) over the 3+ months you will be working on the house (ie: house price=$50K, my profit=$30K, cost of repairs=$30K. resale=$3K, utilities=$2K, for a total of $115K). Then check the comps to see if your total is equal to or less than what comparable homes are selling for in that area.
NOTE: If you don’t have experience estimating repair costs, figure on spending 1 and 1/2 times MORE than what you THINK it will cost!
Hope that helped…
Annie
Thanks for the response. I am very familiar with the financial analysis involved in purchasing a property and the repair estimates that go along with that. That’s simple enough. I am also familiar with the process of running comps though MLS.
What I am looking for is an alternative method of figuring out ARV that gives me another number to take a look at when considering a purchase.
besides comp houses that have sold and comp houses on the market what else is there?
Most rehab lender will do 65 to 80 ARV( After Repair Value)
Here is the calculation:
Offer= (ARV x 72%) - ( Repairs + Holding + Closing cost )
Note: if you want low closing or no closing cost will require higher rate.
530,000( ARV) X 72%= 381,600 is enough to buy $380,000 short sale but not enough to do repair of 38,000. ( see below) That 38,000 down is your repair.
10,000+18,000( example: 386,000@ 10% = 38,600 divide by 12 months. Hold for 6 months $3216 IO X 6 months =$ 19,299) +Closing cost $10,000 = 38,0000
What if the property sit longer. Where is your reserve to cover your ass.
381,600 - 38,000 (10,000+18,000+ 10,000) = 343,600 Offer
Some lender max at 80% due to borrower cash. If you had gotten a higher % of ARV, you would not have to put the cash.That is leverage. the 38,000 I would keep just as emergency to cover my ass if the property will not move. Pad the repair alittle.You pull the wall, sudddenly you have water damage behind the wall.
530,000 -418,000( 380,000 to buy short sale + 38,000- Repairs ) = $112,000 profit