Avoid These Mistakes To Make A Sale

“After repair value” (abbreviated ARV) is the savvy real estate investor’s equivalent to fair market value (FMV). It’s no secret that the vast majority of discounted properties are abandoned junk properties, vacant properties or fixer uppers.

They are often properties that need repairs to be returned to the fullest profitable use. As a result, investors have found that they must know the difference between the “as-is” value of a desired property, and the value we expect a developed piece of real estate to fetch on the open market after it has been completely fixed up.

This open market value “after fix-up” is known as the ARV.

After Repair Value Vs. As-Is Value
As an investor, your initial concern should be,”At what price should I pay to acquire this property?”

That’s your As-Is Value.

In order to renovate and re-sell your houses you need to estimate ARV to determine expected profit after covering costs (acquisition costs, holding costs, and soft costs). This concern should quickly follow in your though process.

The ARV and As-Is Value are all estimates used for analysis and decision making. But, they are not set in stone…(and they are certainly neither “fair” nor “unfair”).

Steps for Estimating After Repair Value

As an investor, we want to understand the analysis needed to estimate after repair values. Here are a few tips:

* Use sales figures from home sales not listing (asking) prices. At InvestorComps a report will give you these real estate comps not listings.

* Compare home sales figures of directly comparable properties in the same subdivision or very nearby; typically within a mile.

* Get rehab estimates from about 3 licensed general contractors – each component must be clearly itemized.

* Use supplies and parts cost estimates from the big box stores – Home Depot,Lowe’s and Sears.

The first two points let you know what you can expect to sell the property for after it’s been renovated (ARV). The last two points have more to do with determining how much you want to pay for a property (As Is Value) you intend to rehab, by factoring out expected repair and other costs.

And of course, use your on demand training available at InvestorComps to learn and grow in all the areas of real estate investing.

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