DIY REHAB ARV vs PROFESSIONAL REHAB ARV

22 Replies

Now i dont know if the title even makes sense but let me break it down some.

so is there a difference in the ARV when refinancing when you DIY your rehab vs when you hire out contractors who specialize in this field?

cause my question is when you're going to refinance what exactly do the banks look at? Like do they ask for receipts of who did the labor making sure its someone who is certified to do the work etc? Or do they go off of just the upgrades and the updates that you added to the home weather it was done through a contractor or DIY'd?

hope this makes sense and TIA

I've never heard of a bank asking for receipts in a standard refinance. However, if the appraiser is experienced and knowledgeable, they'll be looking at the quality of the rehab. Now that's a big "if." Appraisers follow the 80/20 rule just like everything else, so most aren't great at their job. But plenty of investors take on rehabs themselves in the beginning.

Originally posted by @Nicole Heasley :

I've never heard of a bank asking for receipts in a standard refinance. However, if the appraiser is experienced and knowledgeable, they'll be looking at the quality of the rehab. Now that's a big "if." Appraisers follow the 80/20 rule just like everything else, so most aren't great at their job. But plenty of investors take on rehabs themselves in the beginning.

 Oh wow really? I would of thought that they would check every crevice down to the detail?!

so then its safe to DIY my first project and do ut as good as possible to save myself some money, add value, and potentially get some good profit when i refi correct?

ima look up the 80/20 rule cause i dont even know what that is.

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Originally posted by @Daniel Kevin Lara :
Originally posted by @Nicole Heasley:

I've never heard of a bank asking for receipts in a standard refinance. However, if the appraiser is experienced and knowledgeable, they'll be looking at the quality of the rehab. Now that's a big "if." Appraisers follow the 80/20 rule just like everything else, so most aren't great at their job. But plenty of investors take on rehabs themselves in the beginning.

 Oh wow really? I would of thought that they would check every crevice down to the detail?!

so then its safe to DIY my first project and do ut as good as possible to save myself some money, add value, and potentially get some good profit when i refi correct?

ima look up the 80/20 rule cause i dont even know what that is.

 They might! That's the thing about appraisers--it's the luck (or unluck?) of the draw. 

The 80/20 rule is a general success rule you'll hear occasionally in RE. It's simply a rule of thumb when it comes to success. Let's use RE agents as an example. It's easy to get licensed as an agent, so a lot of people take the test and get licensed. However, it's a very hard job, so you typically see 20% of agents doing 80% of the business in a given market. Most give up, fail, or never even really get started. 

Same goes for appraisers. Probably 20% of appraisers do 80% of the business in a given market. The tough thing about appraisers is you never know who you're going to get, and they can kinda do whatever they want. It's pretty frustrating, because if the appraiser gives a number you disagree with and you ask why, they can just be like, "Because I said so." 

I would do the rehab the way you want, and if the appraisal doesn't go the way you want, have a backup plan.

To refi out. *some* lenders/banks have seasoning periods. they sometimes will over look if enough improvements are made. It does not really matter if it is you doing the work or a contractor. Best way to get maximum value out is to put in the sweat equity if you can.  The appraisal will tell all. If the work fits and the comps are there the value should be there. a rental grade rehab will not get the same value as a nicely done home for sale in the same area. 

Originally posted by @Eric Goldman :

To refi out. *some* lenders/banks have seasoning periods. they sometimes will over look if enough improvements are made. It does not really matter if it is you doing the work or a contractor. Best way to get maximum value out is to put in the sweat equity if you can.  The appraisal will tell all. If the work fits and the comps are there the value should be there. a rental grade rehab will not get the same value as a nicely done home for sale in the same area. 

 Why wouldn't it get the same value? Is it cause one is treated as a business so they look at the income numbers that it brings in vs the other one because its a residential home and they compare it to the rest of the houses around that are similar?

or something like that right? Ithink iheard somewhere that they get treated differently? But wouldnt the rental house with the rehab receive higher rents due to its curb appeal and updated interior? Therefore bringing in higher quality tenants right? Thats the given difference from the rental vs residential home?

@Daniel Kevin Lara if the rehab quality is the same then there should be no difference if you do it or a contractor. When i say max value out. I don't mean appraisal i mean your costs in. There are different quality rehabs... thats for sure. So if you do a great rehab that matches the comps then you dont have any issue, you also dont want to over do it.

@Daniel Kevin Lara the appraiser determines value based on market comparable properties. Having receipts to prove the extend of rehab can be helpful to influence an appraiser, especially if shorter time periods are involved. I have had appraisers ask, "what improvements did you make to this property after acquiring?" Being able to show that XYZ company did $30K rehab, could absolutely substantiate your claims versus you spending $10K on some DIY improvements. In a perfect world, it shouldn't matter, but appraisers biased and work for the bank. Their goal is to protect the bank and their reputation, not to get you highest value.

Another caution is make sure the DIY work meets the standards of a professional. I have purchased many houses that had DIY basement finishing. You can tell immediately by looking at drywall seams, outlet placement and HVAC ducting. You don't just watch a Youtube video on drywall taping and become an expert. I say that from personal experience.

Appraisal is not a cost appraisal. No one asks for what you paid. The measure of value is COMPARABLE sales- similar square footage, close by, similar use, sold in last three months with a loan not cash.

@Daniel Kevin Lara To add value you have to buy cheap or add value. Paint, flooring (unless hardwood) and general fix up will not justify a higher appraisal unless you bought below market. Remodeling a bathroom will, but if you look at a cost vs return estimate on remodels you loose money on almost everything. So a nice diy will allow you to appraise higher but after costs you may break even. If your market is rising and you buy lower than nicer comps in the area you may be able to refinance and pull money out after a rehab. Thing is, your appraiser knows what you paid. A buyer will likely pay more than your appraiser's estimate because they want a freshly painted and rehabbed house, but an appraiser can only arrive at that number if a buyer has paid it for a comp in the last few months.

Originally posted by @Nicole Heasley :

I've never heard of a bank asking for receipts in a standard refinance. However, if the appraiser is experienced and knowledgeable, they'll be looking at the quality of the rehab. Now that's a big "if." Appraisers follow the 80/20 rule just like everything else, so most aren't great at their job. But plenty of investors take on rehabs themselves in the beginning.

 What is the 80/20 rule?

@Nicole Healey I am doing a rehab myself now (pretty much everything) but did hire a contractor for few jobs. I am certain that I could have done the same job as they did, if not better, if I had the time. Therefore, I somewhat disagree that the quality of work can be attributed to a contractor more than of that done by the owner him/herself.

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Originally posted by @Nicole Heasley :
Originally posted by @Daniel Kevin Lara:
Originally posted by @Nicole Heasley:

I've never heard of a bank asking for receipts in a standard refinance. However, if the appraiser is experienced and knowledgeable, they'll be looking at the quality of the rehab. Now that's a big "if." Appraisers follow the 80/20 rule just like everything else, so most aren't great at their job. But plenty of investors take on rehabs themselves in the beginning.

 Oh wow really? I would of thought that they would check every crevice down to the detail?!

so then its safe to DIY my first project and do ut as good as possible to save myself some money, add value, and potentially get some good profit when i refi correct?

ima look up the 80/20 rule cause i dont even know what that is.

 They might! That's the thing about appraisers--it's the luck (or unluck?) of the draw. 

The 80/20 rule is a general success rule you'll hear occasionally in RE. It's simply a rule of thumb when it comes to success. Let's use RE agents as an example. It's easy to get licensed as an agent, so a lot of people take the test and get licensed. However, it's a very hard job, so you typically see 20% of agents doing 80% of the business in a given market. Most give up, fail, or never even really get started. 

Same goes for appraisers. Probably 20% of appraisers do 80% of the business in a given market. The tough thing about appraisers is you never know who you're going to get, and they can kinda do whatever they want. It's pretty frustrating, because if the appraiser gives a number you disagree with and you ask why, they can just be like, "Because I said so." 

I would do the rehab the way you want, and if the appraisal doesn't go the way you want, have a backup plan.

 Thanks for the info i truly appreciate it. I had always wondered because ifelt that now that the world is changing, ifigured the more modern and open things looked it would look of higher value because thats the new trend for the millenials, gen z, and what the future is u folding to? 

but thanks for the 411

Originally posted by @Eric Goldman :

@Daniel Kevin Lara if the rehab quality is the same then there should be no difference if you do it or a contractor. When i say max value out. I don't mean appraisal i mean your costs in. There are different quality rehabs... thats for sure. So if you do a great rehab that matches the comps then you dont have any issue, you also dont want to over do it.

So pretty much find a property thats closed to mine thats fixed up with the same to close description as possible and try to do a similar rehab right? to get the same costs/value out of it?

Originally posted by @Joe Splitrock :

@Daniel Kevin Lara the appraiser determines value based on market comparable properties. Having receipts to prove the extend of rehab can be helpful to influence an appraiser, especially if shorter time periods are involved. I have had appraisers ask, "what improvements did you make to this property after acquiring?" Being able to show that XYZ company did $30K rehab, could absolutely substantiate your claims versus you spending $10K on some DIY improvements. In a perfect world, it shouldn't matter, but appraisers biased and work for the bank. Their goal is to protect the bank and their reputation, not to get you highest value.

Another caution is make sure the DIY work meets the standards of a professional. I have purchased many houses that had DIY basement finishing. You can tell immediately by looking at drywall seams, outlet placement and HVAC ducting. You don't just watch a Youtube video on drywall taping and become an expert. I say that from personal experience.

 What if iknow a couple people that do that do rehabs/construction on the side and dont have an established company but they help me build what ineed done in a short period time (3-4) months? Do you think that can affect the appraisal if they ask me what company did it? But if ihave the reciepts and the quality looks on point do you think that would suffice?

Originally posted by @Caroline Gerardo :

Appraisal is not a cost appraisal. No one asks for what you paid. The measure of value is COMPARABLE sales- similar square footage, close by, similar use, sold in last three months with a loan not cash.

 Thats what ihave read but alot of people do it themselves while the other top wealthy investors hire out and it just popped into my head to ask the question if there was any difference? Cause iknow theres like the crown trip thats cut out and then theres the pre made crown mold trim thats like plastic. So wondered if that even mattered cause of the quality of material/what you spend on the rehab vs you making it look really nice but doing the work right?

hope that make sense?

any website that you recommend that does comparables? Ive heard of some but forgot the names of them. They say they're very good and made for such searches and comparisons vs redfin and zillow and them.

TIA

@Michael Plante

80/20 rule is a general rule beyond real estate. Essentially, it’s that the top 20% of people get 80% of the revenues, because of the qualities that made them top 20%.

Originally posted by @Maxim Yershov :

@Nicole Healey I am doing a rehab myself now (pretty much everything) but did hire a contractor for few jobs. I am certain that I could have done the same job as they did, if not better, if I had the time. Therefore, I somewhat disagree that the quality of work can be attributed to a contractor more than of that done by the owner him/herself.


 That's totally dependent on the individual doing the work. I don't know the OP's experience. I've never laid tile in my life. If I tried putting a floor down and an experienced appraiser strolled through, I'm guessing they'd be able to tell it wasn't done by the pro because it would probably look terrible. If the OP has done that kind of work in the past, he probably won't have any issues come appraisal time.

Originally posted by @Daniel Kevin Lara :
Originally posted by @Joe Splitrock:

@Daniel Kevin Lara the appraiser determines value based on market comparable properties. Having receipts to prove the extend of rehab can be helpful to influence an appraiser, especially if shorter time periods are involved. I have had appraisers ask, "what improvements did you make to this property after acquiring?" Being able to show that XYZ company did $30K rehab, could absolutely substantiate your claims versus you spending $10K on some DIY improvements. In a perfect world, it shouldn't matter, but appraisers biased and work for the bank. Their goal is to protect the bank and their reputation, not to get you highest value.

Another caution is make sure the DIY work meets the standards of a professional. I have purchased many houses that had DIY basement finishing. You can tell immediately by looking at drywall seams, outlet placement and HVAC ducting. You don't just watch a Youtube video on drywall taping and become an expert. I say that from personal experience.

 What if iknow a couple people that do that do rehabs/construction on the side and dont have an established company but they help me build what ineed done in a short period time (3-4) months? Do you think that can affect the appraisal if they ask me what company did it? But if ihave the reciepts and the quality looks on point do you think that would suffice?

 Most substantial rehab requires permits and there is a dollar value tied to those records. 


Originally posted by @Nicole Heasley :
 They might! That's the thing about appraisers--it's the luck (or unluck?) of the draw. 

The 80/20 rule is a general success rule you'll hear occasionally in RE. It's simply a rule of thumb when it comes to success. Let's use RE agents as an example. It's easy to get licensed as an agent, so a lot of people take the test and get licensed. However, it's a very hard job, so you typically see 20% of agents doing 80% of the business in a given market. Most give up, fail, or never even really get started. 


 Nicole, I think @Brandon Turner stole your line! 😂😂





Originally posted by @JD Martin :

Originally posted by @Nicole Heasley:
 They might! That's the thing about appraisers--it's the luck (or unluck?) of the draw. 

The 80/20 rule is a general success rule you'll hear occasionally in RE. It's simply a rule of thumb when it comes to success. Let's use RE agents as an example. It's easy to get licensed as an agent, so a lot of people take the test and get licensed. However, it's a very hard job, so you typically see 20% of agents doing 80% of the business in a given market. Most give up, fail, or never even really get started. 


 Nicole, I think @Brandon Turner stole your line! 😂😂








Yes, he for sure definitely stole it from me. It was absolutely not the other way around :D