I live in the MontrÃ©al area which is in the process of going through a serious correction. It has changed from sellers to buyers market and housing prices are dropping rapidly (which I am thrilled about because deals are coming faster) however I am concerned that the ARV that I establish today will be too high even two or three months down the road.
How would you recommend that I proceed?
Thats a tough situation. My advice is to stay on top of the market as best you can and update. This obviously makes thing much tougher when doing a flip or buying and holding but It can be done successfully if you are getting good enough deals. If you aren't an agent I would advise getting a good agent on your side to help you with this.
@Casey Cuppy Unfortunately most agents are way too optimistic about the ARV for my liking. I have heard of people from Phoenix (there's actually a BP podcast with one) who were buying at 70% in 2007, 2008 and lost everything when the market bottomed out. I am looking for a way to safeguard for this. So far I have decided to buy at 65% instead of 70%. I am open to other suggestions as well.
Yup, cutting back on your ARV from 70% to 65% might be a good idea if you think the market will decline by 5% in the next few months. There are so many other factors to consider - from personal risk tolerance to your market conditions in Montreal to how you are leveraged currently.
I've heard of some rehabbers slicing their margins down to 15-20% in certain markets here in the U.S. We are having a terrible time with "over priced" REO inventory and banks not budging too much off their asking prices, even when they have been on the market for 6 months. Going too thin on your margin can be troublesome if you are not dead on with your numbers going in to the deal though.
Risk/reward!!! Go for it!
@William Johnson you can calculate the month or month depreciation and use that in your calculations. Also, look at active properties/pending properties and see how long they are sitting.
A great way to measure "hotness" or "Coolness" of an area is to look at the contract ratio. Contract ratio is simply pending listings/Active Listings. I wrote a BP blog on it: Contract Ratio
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing