Oakmont Real Estate Investments

Helping Others Get In and Out of Real Estate
Helping Others Get In and Out of Real Estate
  • Home
  • About Us
    • Contact Us
  • Finance Dept.
  • Pages
    • Vacation Rentals
    • Real Estate News
    • Oakmont Blog
    • FAQ
    • Services
    • Our Power Team
    • Testimonials
    • Investor Sign-up Form
  • Investment Properties
    • Investment Properties
    • Property Availability Portfolio
    • Desired Properties Wanted
  • Shop
    • Shop
    • Cart
    • Checkout
    • Account details
    • Orders
    • Downloads
    • Lost password
    • Login
  • Jobs
Home
|
Oakmont Blog
|
How to Calculate After-Repair Value (ARV) and Find Accurate Comps!

How to Calculate After-Repair Value (ARV) and Find Accurate Comps!

May 5, 2017 by Chris Petitclerc Oakmont Blog
1

You probably haven’t heard this exact saying: “A fool knows the price of everything and the value of nothing.” But it may sound familiar. That’s because it rings true, especially for those of us in real estate investing.

In this post, I’m going to give you a roadmap for figuring out a property’s value.  Because if you don’t have this skill, nothing else in real estate matters.  This is something that will be paramount to your career as an investor. The ability to determine a property’s value quickly and effectively is nothing less than essential to any investor’s ability to even turn a profit.

I often see people speculating on the value of homes, and it’s just not a good path to go down – trust me. You want to make your decisions based on rock-solid data and (when available) expert input…

So let’s get going.  Here’s the process flow of figuring out what to pay for something:

  1. Find the “After Repair Comps” – What will the property be worth AFTER it’s built or renovated?
  2. Analyze the Comps and Determine the ARV
  3. Estimate Repairs/Construction Costs and other expenses
  4. Apply the Maximum Allowable Offer formula to determine the max offer you can make

ProcessFlowValue

And let’s be clear, when we talk “Value”, there are really 2 #s that matter: 

  • Current as-is Value
  • After-Repair Value (ARV)

If we limit our conversation to looking at houses that need work, to either wholesale to other investors or to buy yourself and renovate, then my recommendation is to ALWAYS figure out the ARV first, then work your way backwards to the As-Is Value to determine what to pay for a property.

Read that part again – it’s important!

Knowing Accurate After Repair Value (ARV) is extremely important – you really have to nail this down! If you underestimate a property’s ARV, someone could easily outbid you and snatch up a house you were eyeing… or you could end up paying way too much for a property and losing your shirt on the deal. These are some pretty big risks and highlight just how critical it is that you become adept at effectively getting to an accurate ARV.

“As-IS” is what you pay now (your MAX offer) and ARV is what you can resell the property for when you’re done rehabbing or building it.   Makes sense?  Ok, let’s keep going

There are essentially 3 ways to determine a property’s value:

  • Do it yourself using some online resources and some math
  • Use a realtor – have them supply the comps and possibly have them generate a CMA (Comparable Market Analysis)
  • Use an appraiser

If you are out there looking at 20 potential deals a day to buy, you’re not going to consistently be able to use options 2 or 3 (realtors won’t generate 20 CMAs a day for you no matter how good they are and appraisers are expensive and take time, while you have to make an offer quick!).  So this post will focus on #1 – determining value yourself.  This is a skill that, in my opinion, you absolutely must learn!

Now, if you’re rehabbing a house and need to determine what price to list it at, then that’s a different story.  Find a great realtor to help you, put together a CMA and come up with the optimal offering price!

But if you’re out there making 5-10 offers a week, then you need to move quickly and be able to do this yourself, on the go.  So let’s talk about how to do that.

Determining the After-Repair Value 

Step 1:  Your starting point should be comparable sales.   Find actual sales data within the last 6 months of similar houses to your subject property.  The properties that sold should be similar to yours in:

  • Size (square feet)
  • Bedrooms, baths
  • Stories
  • Location – should be as close as possible. Same block, same neighborhood, etc.
  • Note:  the condition should be similar to what your property will look like when you’re finished rehabbing/building it!  This is important.  If you’re buying a property to renovate, comps should be of already renovations properties with similar finishes to what you plan to put in

The comparable properties don’t have to be exactly like yours.  You can make adjustments to your value based on differences in sq ft, bedrooms, baths, basement, etc.   But the properties should be as similar as possible.

Sources for Finding Comps

MLS:  Your single best source of comps will be from the MLS.  There is no more complete source of data than the MLS, hands down, in most markets.

Non-MLS Online Resources:

  1. Zillow
    Zillow’s data and comps have gotten much better over the last few years. In my market and many other markets, their data is almost or is as complete as the MLS.  Unless you’re in a non-disclosure state, Zillow can now be your go-to comps provider AND Rehab Valuator Premium now pulls comps automatically from Zillow and populates them in the software for you:

 

  1. Trulia
    Same pros and cons as Zillow. If you’re in a “disclosure state” you should be able to get good comps data on Trulia
  2. Other Free Online Resources
    These include:

    • Eppraisal
    • Realtor
    • FindCompsNow
    • Redfin
    • PropertyShark

Now, you can also find some affordable paid online resources that may aid in your quest to determine property value. These are a bit trustier (yes, it’s word, well, kind of) than the free resources, and are less expensive than paying an appraiser:

  • RealQuest
  • InvestorCompsOnline

Ultimately, if you’re an agent then you should be relying on MLS for most complete data and if you’re not an agent, then find a good one to work with some that they can supply you with reliable comps, especially if you’re in a “non-disclosure” state (check out link above).

Once you have accurate comps, I recommend creating a rough “$ per sq ft” ARV estimation.  You can take an average of the relevant comparable sales properties of the $ per sq ft sales prices.  You can then add or subtract if your subject property has less or more of something:  bedrooms, baths, finishes, amenities, etc.  Again, remember, this is as much of an art as it is a science.

Ok, you have comps and have a good idea about the ARV, now on to Step 2:

You know what the property will be worth once the renovations are complete, you have to estimate what it will take to get there. I.E. what the repairs will cost.

There is no substitute here for experience.  Read this article I wrote recently for an indepth look at this topic

Now you know the ARV, you have an idea about Repairs, so let’s figure out what to pay:

So, you know the ARV.  You know the repairs.  Most of the work is done.  From here it’s easy.  Whether you’re going to wholesale this deal or buy it yourself, make some guesses about closing costs, assign your wholesale fee (if applicable) and use the Max Offer Calculator to tell you what the Maximum Allowable Offer should be.  Check out this video:

 

I tried to keep this short and sweet, so if there’s anything I left out, comment below and I’ll answer your questions.  I’m also going to post a few additional resources for you below to check out! (If don’t want to do the work yourself, you are also welcome to try our flipping software, which does the calculating for you).

Remember:   “An investment in knowledge pays the best interest.”
~ Benjamin Franklin

Talk again soon,

Share this:

  • Tweet
  • Share on Tumblr
  • Print

Like this:

Like Loading...

Related

  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • LinkedIn
  • Tumblr
  • Reddit
How to Spot a Good Investment Property
Marketing Yourself as a Wholesaler

Related Posts

  • Are you a wholesaler needing a buyer?
    Attention Wholesalers Do you need a buyer for your property? We work together with other
    July 23, 2017
  • Marketing Yourself as a Wholesaler
    All too often would-be investors get into wholesaling with the hopes of doing a few
    May 9, 2017
  • How to Spot a Good Investment Property
    Ask four investors how to spot a good investment property you’ll probably get four different
    February 6, 2017
  • Sell your house in 10 days
    Click here for our FREE E-Book How to Sell Your House in 10 days! You
    December 15, 2016
Do you want to retire with more income? Smart investors know that owning income generating properties is the safest path to create wealth. Despite cyclical ups and downs, in the long term real estate prices always go up. We provide secure turn key income properties in strong housing markets. Our properties are affordable, high quality and we strive to ensure your investment experience is profitable, seamless and hassle-free.
ADDITIONAL LINKS
  • Follow Us On Twitter
  • Follow Us on LinkedIn
  • Follow Us on Pinterest
  • Follow Us on Google Plus
  • Terms and Conditions
  • Privacy Policy
  • Site Map
Oakmont on Facebook
No photos. Maybe you entered a invalid username or hashtag.
Oakmont Real Estate Investments © 2021. Privacy Policy
Recieve Our Latest Investments

Recieve Our Latest Investments

Receive now our latest investment properties in your area.

Please provide consent.
Yes, I consent to receiving direct marketing from this website.

You have Successfully Subscribed!

%d bloggers like this: