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
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!