ARV or FMV for wholesale and how/why?

I am a lil surprised to not have anyone telling me I did it right or wrong = p. Maybe the thread just needed a bump to get it jump started as I always seem to post new threads late at night ^_^

If the market value is $117K and its going to take $40K to fix.
50% Is what you need to flip thats $54K the most you should pay for the property.

First of all, in practical use, ARV and FMV are the same thing. FMV is really tough now because with all the foreclosures, the home prices are really being dragged down. Sometimes you can come up with two sets of comps -those that were foreclosures and those not - but this doesn't really work because an appraiser is likely to lump them all together.
The year built certainly is a consideration - you can't compare a hundred year old home to a 10 year old home - or can you? What if the 100 year old home was just remodeled? See - the art here? You've got to really study every comp and adjust upward and downward in value for lots of factors - age, size (really anything more than 10% different in square footage is not a good comp - you have diminishing returns in square footage as the size gets bigger (i.e., a 1500 square foot home is not necessarily worht 150% of a 1000 square foot home). Other factors to consider - location (busy street, view,etc), number of beds/baths of course, size of garage, basement finished or not, etc.
Besides all this, if a house is listed for 112, and you offer 37 - you are highly unlikely to get an acceptance. And if it is going to create a short sale situation, I personally would not bother. I don't think you described the seller's situation - maybe he is in dire distress, but still this is a huge gap - I'd look for another property.
Best to you - keep posting.

What kind of condition is the house in? Is it rentable the way it is? Figure out what it would take to make it rentable, then base the offer on the cash flow it will generate as a rental and sell to an investor who wants to buy and hold a rental. Not all deals are candidates for retail fix and flips.

Gena,
You are so right when you say running comps and determining ARV is an art! You only master this art through evaluating multiple properties and learning your area.
Tom,
I let the property/deal determine what strategy to use. You are right when you say not every property will work as a wholesale or fix/flip deal. Some will work for landlord type buyers others will work for L/O or subject to deals.
If you don't know what you are doing you can bypass a lot of deals OR waste time looking at deals that can't be made into a deal.
Jeremiah,
If the owner owes more than you offer it is a waste of your time to try and pick this one up with a fix/flip strategy. Will the seller let you take over the payments or does he need to cash out? What are rents in the area? What would
it cost to get it rent ready? What price would you need to offer in order to produce the cash flow your landlord/buyers are looking for?
When the buy price is too high for fix/flip, try the landlord buyer, a sandwich L/O or a subject to deal.
Its great that you are out evaluating deals! This is how you learn the critical part of this business. ACQUISITION!!

Michael Mangham
MD Home Acquisitions LLC

you also have to keep in mind what the estimate from the contractor includes. I had a contractor do a rehab for one of my rentals, only to find out that after all was done and paid for, it turned out that many of the 'repairs' that he did were unnecessary for what the property was intended for.

So... as Michael and Gena stated, it is difficult to know if a property can be a deal when you are new at this... The property you are looking at may be a good deal, but you will need to think creatively on how to make it work.

Learning and progressing every day,
Valerie

I was told ARV and FMV were different. Yet, I think I see what you mean that in our market having more foreclosures there is no true FMV only ARV. I never thought about your opinion on the age of houses. I could rehab/remodeled home have better quality then some that might be on the market not that I would for a fix/flip but I could. I am however confused on your "you have diminishing returns in square footage as the size gets bigger (i.e., a 1500 square foot home is not necessarily worht 150% of a 1000 square foot home)." part as I understand a smaller house has a higher price per sq/ft is that what you mean on diminishing returns? I also think what you said about location might have a big impact that I might not have taken into consideration though, I am unsure how to add that into a price. Any thoughts on how to do that? This location I was looking at is no more than a short walk to max 5 minute drive from everything in town from schools to stores, even downtown!

Yea, I didn't think I would get the acceptance either. On the seller's situation I did describe in my other thread I should have here as well. They bought the house for his sister and her children once they were grown he rented it out and is now tired of dealing with tenants and just wants to unload the property onto someone else so much so he dropped the listing price 7,000 in 16 days so I figured he was motivated enough, maybe not...the listing agent also behaved at first like he was a motivated seller but, by the second phone call to get my contractor in there she played it cool and told me he could hold it no problem that he was NOT a motivated seller (kinda trying to backtrack what she said before I guess).

The original listing price was $119,000 then reduced to 112,000. I am unsure where you got the market value of 117,000. I am unsure where you are getting your numbers to flip this property. I have to have hold costs and provide a profit for my end cash buyer and we agreed 30% was fair. That is why we used the ARV * 70% - rehab/remodel formula on this one. 112,000 at 50% is 56,000. On the other had if I just dropped 40k off the top gives me 72,000. Hold cost at 1.2% of listing price * 6 months gives me 8,064 give me 63,936 less the minimum 10% profit for end cash buyer 11,200 that is 52,736 offer price before wholesaling it taking that into account and knowing my end buyer only has 11,200 profit I should deduct the fee I wish to gain and then wholesale that price plus my fee to my end buyer. So my resulting offer should be 47,736. Interestingly enough after looking at a few posts here I think if the house is still for sale I might make another offer as this is more than my first and they might accept that offer if not there isn't much I can do that is cutting into my end buyers profits but, they still get 10% profit and I believe that is better then the stock market, recalling location I don't think they will have an issue selling this place...if it is still for sale ><

LOL I've never thought of it like that. I do believe there is some difference though, and that is what they were going on about above as ARV is better for top/down markets and FMV for bottom/up...at least I believe I understood that correctly

Thank you Valuni. I will take that into consideration when resubmitting another offer to the owner if it is still for sale. I will go with 40,000 over the 45-50k I was thinking would be safer but, as you said might not be needed. I do need to be creative on how to make it work. I haven't considered this property for anything but a fix/flip and more for a wholesale advantage for myself. I will be looking into other prospects. Also I have picked up some books on roofing/siding, masonry, drywall, carpentry, plumbing, and electrical work so I can have a better idea of what I am looking at and to see as you put it if not everything is required. I know on deals like this where their isn't much room to bring in multiple G.contractors for estimates makes it difficult as the property was still being lived in ><. So I figure if I know a bit more I can maybe pick up an estimating program like "2011 National Repair & Remodeling Estimator" read it was pretty good but, for 2012 ^^. This way I can have two different opinions one from what I see and would consider and another from the G.contractor I use.

The house is in pretty bad condition even the G.contractor said that. I is liveable but, I don't believe completely up to code as most of the work didn't even have permits pulled. I am still unsure how to tell if a house is rentable yet, I believe it must be up to code in order to do so. I guess that is something I should consider asking my G.contractor in the future how much just to bring it up to code. I need to find a good solid formula for cash flow if I do consider something like that though. Thank you very much for you thoughts TRSD.

I also agree with Gena that it is an art but, I believe all types of art have a foundation and very few people give out solid data in the basic foundation and that is where I've struggled a lot in my work for ARV. That is why I shared with my DG family my discovery to help others for their future endeavors. I don't know how solid it is but, from the comments replied to it I feel much better about it now. Dean was very wonderful in giving information on FMV yet as I stated in a past reply I believe FMV is more for bottom/up market not a down/top market and from what I've seen we are still in a down market but, don't quot me on that for national that is just my unproven theory for my local market (will be proven soon it is bugging me).

I do still need to learn how L/O and sub2 deals will work here in Texas and how they work in general. I've been taking everything one step at a time and it seems I might need to broaden my horizons to other strategies to secure deals. I believe in this case I might need to also do as suggested in some other threads of mine call around to rental properties as I might find more prospective landlord buyers there.

I believe the owner would allow me to take over the payments but, I would need to double check that and I think you are referring to sub2 and l/o when you are asking about that. My only concern is I can't afford the payments even if he did allow me to do that and not sure if there is a way to work around that aside from having an end buyer (landlord type) willing to do so and repair bringing it up to code. I mean the foundation is the main concern as it is pretty bad tearing into the wall of the garage (funny they don't show a picture of that room or of the garage with the door open ^_^). Was told that would require around 20k to fix the foundation. I guess the rest of the house could make due with 5-8k in rehab/remodel work minor patching stuff. I am guessing here for minimum to rent this place.That is if property passes code requirements not totally sure how that process works to be honest just know it isn't always pretty if it doesn't. If all works out well in that case and can figure a way to cover the 25-30k minimum rehab/remodel (guessing numbers) and take over payments I think that might work.

I know the area and I believe the location is good, it just has a LOT of work needed and owner is hot then cold on if motivated, thinking this is a result of his agent's work. Also thank you for the complement Mr.Mangham. The way I figure it is best go in head first realize my mistakes learn from them and try again. I think this property has been one of the best things that could have happened to me whether I get it or not. I am still learning and struggling to learn all the angles so maybe in the future something like this I can nail it down in the hours time everyone else brags about and not the days time it has taken me to get to where I am lol.

kudos for being so diligent! it's better to be safe than sorry, and the more you know the less likely you will get stuck with a bad deal. I also think it's great that you post your questions here, and repost when you don't get any feedback-

keep us posted on the progress and outcome of your deal!

Valerie

Well I spoke with my end buyer and sent her the numbers (not giving away the address or any clues so not to have snubbed out of the deal) and she refused to do it unless ARV*70%-rehab/remodel and then also explained the fact that the property has major foundation issues it will be VERY hard to sell as even if they are repaired and under warranty they can sneak back to be a problem as a result making it hard to sell. So in the end I went back to that formula re-made my offer and was declined. The agent told me the owner would sooner lease the property then accept that offer to sell it b/c of debt issues with mortgage. O well I've learned so much so was totally worth it. Next house! ^_^