How to calculate ARV

How to calculate ARV

How do you calculate ARV?

Thanks.

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ARV

A simple way to figure out ARV is to get comps... Look for atleast 3 comps in the area that match the house your interested in that has sold... not pending or listed.. but sold and actually closed. Try and take the higher sold comps. You can get this information from a realtor. Try to get it within the last 30-90 days and within a .5 mile radius of the interested house wouldn't go past 1.5. These houses need to have same bed and bath and style of house with about the same amount of square footage(3 bed/1 bath 1200 sqft Ranch). You can kinda increase/decrease price if the comps have an extra HALF bath or if your interested home has a HALF bath... a full bath and your pushing the envelope. You have a 20% +/- cushion for the square footage as well (Interested house is 1000 so you can run comps off of 800 OR 1200).

Once you have your list of solds, take the price per sqft of each house (which you can get by dividing the sold price by the sqft) and add them together... divide by three... you now have an average ARV price per sqft... Take that average ARV price per sqft and multiply the sqft in the interested house by the average ARV price. That's your ARV... and depending on how well the house is flipped could go up...

Take that number... minus 15% (for closing cost... easier to take the number and multiply by .85 because 100% minus 15% is 85% right?), minus rehab cost, minus your profit = the offer you can make on the house.

Example:

3 houses
120000 3/1 1200
110000 3/1 1000
115000 3/1 995

(120000/1200) + (110000/1000) + (115000/995) = 325

325/3 = $108 per square foot average

Interested house is 1100 sq ft... so...

108 * 1100 = 118800 ARV!!!

Ok... now what to offer....

118800 * .85 (Remember... this is the closing cost) = 100980
100980 - Rehab (In this case... 20000K for rehab) so...
100980 - 20000 = 80980 (This is your end buyers/or maybe even your "all in" number.)
80980 - Your profit (Killer deal... you want 10K) so...
80980 - 10000 = 70980

70980 is your offer!

Oh and by the way... 80980 is around 68% of what the example house is worth, 118800 (Wanna figure that out? Simple 80980/118800)... could you sell that to an investor? Heck what if you actually locked up a turnkey at 68%? Lower the better buy hey.. you can't beat 70%... Unless you can lock it up at 60% Eye-wink

Good Luck!

Anybody please chime in if I'm wrong...

My 2 cents, hope it helps...
T and J Real Estate


John

You were doing a great job up to this point!

T_and_J_RealEstate wrote:

Ok... now what to offer....

118800 x .85 (Remember... this is the closing cost) = 100980
100980 - Rehab (In this case... 20000K for rehab) so...
100980 - 20000 = 80980 (This is your end buyers/or maybe even your "all in" number.)
80980 - Your profit (Killer deal... you want 10K) so...
80980 - 10000 = 70980

70980 is your offer!

Oh and by the way... 80980 is around 68% of what the example house is worth, 118800 (Wanna figure that out? Simple 80980/118800)... could you sell that to an investor? Heck what if you actually locked up a turnkey at 68%? Lower the better buy hey.. you can't beat 70%... Unless you can lock it up at 60% Eye-wink

Good Luck!

Anybody please chime in if I'm wrong...

My 2 cents, hope it helps...
T and J Real Estate

After calculating the ARV, which you did a GREAT job on, your formula is wrong for figuring your MAO(maximum allowable offer)

ARV x .70 is what you want to use. This allows for all of your holding costs (which will include closing costs) and a PROFIT for the end buyer. They seem to enjoy getting that.

$118,800 x .70=$83,160
$83,160- $20,000 (repairs)=$63,160
$63,160-$5,000 (your fee)=$58,160 (you may even have to go a little less than $5k)

Your MAO is $58,160

The end buyer is only going to make about a $20,000-$24,000 profit IF nothing unexpected comes up in the repairs.

Good luck!

Karen

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John

Karen is right in the formula (nice to see you back here Karen ! )

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THANK YOU KAREN!!!

I'm glad you commented in... Its nice to know that my mistake isn't going to hurt anyone's offer... Or mine for that matter Smiling

So it's the holding cost calculation I got wrong...

.70 It is!

Thanks!!


John

T_and_J_RealEstate wrote:
I'm glad you commented in... Its nice to know that my mistake isn't going to hurt anyone's offer... Or mine for that matter Smiling

So it's the holding cost calculation I got wrong...

.70 It is!

Thanks!!

Well, it was that particular step. You were not figuring in profit for the end buyer.

This is what I am teaching every week, all over the country and Canada. (And a few other places they may choose to send me)

Karen

__________________

"You're never too old to be what you were meant to be!"

www.deangraziosi.com/real-estate-forums/investing-journals/59128/day-for...

"Shining Like a Star & Dancing on Sunshine"

"Shoot for the moon! Even if you fall short, you'll still land among the stars!"


Max Offer

I think your minimum offer & max offer with the 70% formula, repairs & profit will end up somewhere between $50k & $55k, or between 42-47% of ARV. Depending on the repairs, that percentage will change. It might be that you have 1 or 2 wholesale buyers who have the cash & can close, yet they know another investor who'll take it once they buy it. They have to be at or near the same offer price you'll originally be for it to work. Which is why I think you should offer around $51k to the seller, go up to $54k-$55k & you should be set for those "Just in case" scenarios. I know it happened to the 1st deal I had.


ARV

New to this business, I personally do not focus on ARV, simply because, I do not understand it so I opt to not go by it.

Here is how I figure things out...

I purchased a duplex for $7,000.
Comps indicate, houses sell for $12,000 to $20,000. ($40,000 if rehabbed)
The house I purchased requires $100,000 in rehab "Total Gut Job"
If I do the work myself, I can do it for $40,000.

(ok, I am doing the work myself, lucky for me I am a handyman So my investment is $47,000) Ok, so I would loose money if I went with ARV math.

So here is my plan... But, fix, hold, rent then sell when ready.

Rent is:
$1200 x 2(units) = $2,400 x 12 (months) = $28,800

$28,800 Annual Gross
-$1200 Property Manager
-$675 Property Tax
-$500 Insurance
-$180 Bank Fees
-1200 Water Bill

Total $25,045 x 10 years = $250,450.
Then sell it for $40,000 or maybe keep it for another 20?

my point is... my ROI is less then 3 years... Now that's an investment!


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