I just put this property under contract and i wanna know if this is a good deal
value 111,000
under contract-72,000
ARV-? how do I determine this???
The after repair value is determined by finding what every house just like this one sold for in the same neighborhood in the last 6 months. That is the after repaired value or ARV.
you need more info…
what’s the condition of the property?
how did you come up with the value of $111k and why did you make the offer you made?
To determine the ARV (After Return Value), I would highly recommend that you take a licensed building contractor on your inspection with you and really pick his mind about the necessary repairs and the cost to make them. You will also need to factor in the holding costs which include what you will also pay during the time you are repair the property and advertising for an end buyer. This includes taxes, insurance, utilities, mortgage etc.
ARV - After-Repaired Value
Source - REIClub Investing Abbreviations (http://www.reiclub.com/real-estate-abbreviations.php)
Keith
Yep - you got me there. Must have had a brain freeze while typing that one. The ARV is “After Repaired Value” or “After Repair Value.”
ARV is the equivalent of the market value of the property after you complete any repairs, remodeling and/or renovation. The ARV is not your purchase price + cost of repairs + your profit. It should be based on the market from comparing other competing listings and sold comparables. This will help you see what your profit margin will be.
The process for analyzing wholesale deals is pretty straightforward. Start with your ARV. As stated above, this is the After Repaired Value. Don’t just look at EVERY house sold in the last 6 months, these aren’t all rehabbed like yours would be. Ask a real estate agent to get you a CMA (Comparable Market Analysis) or simply “comps” and specify that you want to see ONLY fully rehabbed properties included. If your agent gives you crap, whack 'em and find another one. I hate dealing with 'em personally but they’re necessary to your business. From there, talk to a few contractors about the repairs needed and even get them to walk the job with you if possible and give you an actual bid. Get three of these if possible to get a feel for the costs of things. Now to the number crunching.
Your offer should be no more than the following:
(ARV x 0.65) - Repairs = MAO (Maximum Allowable Offer)
This is if you’re planning to wholesale, if you’re planning to rehab than you can change 0.65 to 0.70. Seen as how you are new, I would HIGHLY suggest you stay out of rehabs for now. Good luck!
Oh and FYI, if you find out you offered to much, don’t panic. Go back to the seller and explain that upon inspection, the value of the property isn’t where you expected and so you need to get it at whatever you found out the right amount was. If they’re a motivated seller, they’ll comply. I’ve had sellers come out of pocket to sell to me before.