What kind of ARV should I look for in this market?

Question

What kind of ARV should I look for in the DFW market right now?

We are working with wholesalers who are bringing us deals at 80ARV of their estimate on what the property would be worth.

Is that too high?

Should I trust their comps?

What is a realistic ARV from a wholesaler?

Alberto Camacho · Answer

-80% ARV? what are repair\make ready costs? 80% might make a nice buy and hold if the make ready is low.

If your not finding your own deals your capture is going to be thin.

-Trusting comps? I would verify the CMA, rehab costs, taxes and anything else that goes into the analysis of the deal. Why would you trust anyone that you have not trained yourself?

- Realistic ARV? again what are the repair costs? Do you buy and hold or flip? In the end does it really matter what the ARV is if the numbers make sense for your investing goals.

Steve Buchanan · Answer

Percentage of ARV is only one piece of the puzzle. 80% of ARV with $1k repairs is a completely different deal than 80% of ARV with $40k repairs.

In my experience you should find a way to get your own comps. Wholesalers will often cherry pick comps to make their subject property look more valuable.

Hattie Dizmond · Answer

Alberto Camacho nailed it!

The "Rules" are rules of thumb or guidelines.  They give us a quick, down & dirty way to know whether we have a shot at something being a deal.

As a flipper, you have to acknowledge that you have a level of risk on every deal.  Basically, the more $ in your required rehab &/or the longer the rehab timeline, the bigger your risk, because there are many more opportunities for things to go wrong.  Work/labor/effort is money.  Materials are money.  Time is money.  Any time any of those exceed your estimates, you're almost always eating into profit.

That said, profit is profit.  You can do a deal with less potential profit, as long as the risk:reward analysis fits your personal model.

For example...I work in a well paying corporate position.  I don't want to work in a corporate position for the rest of my life, which is one of the reasons I'm pursuing real estate.  However, the fact I'm not dependent on the income from REI at this point means I can establish higher thresholds for required returns than someone who may simply have to have income of some kind being generated.  I may be able to say that I won't do a deal unless it has a 20% ROI, because the time obligations and risks make anything less not attractive to me.  Whereas, my friend Sam may be a full time investor and be willing to take anything with an ROI over 12%.

The bottom line is that I never throw out a lead based solely on how closely it aligns to the mythical 70% Rule.  I always run the numbers on the lead using my personal criteria, including financing costs, etc.  As I've said in previous posts, people that are playing with their own cash can make a lot more money on most deals than those who are having to use some type of financing.

And, as for ARV's and wholesalers...if you find a wholesaler who consistently (I'm talking over the course of years) brings you high-quality deals with solid ARV's & rehab estimates, then begin to trust their numbers.  Until then...suspect every number.  Numbers can be made to tell almost any picture you want them to.  And, there are several well known wholesale operations in the DFW area who consistently cherry pick comps to support inflated ARV's.  I'm conservative on my ARV's...always...but, I would tell you the same thing about a deal I brought you...verify, verify, verify.  I would never intentionally mislead you or anyone else, because my reputation means more to me than any deal, but what if I simply made a mistake?  It's better to have multiple sets of eyes on it...always.

Chance Housos · Answer

I would never trust a wholesalers ARV. The best thing to do is find a way to get your own comps. Most are going to be inflated.

Frank Wells · Answer

yes. Looking to flip.

Looking at around the 80k proce range. Homes built in the 70's or 80's

Andrew Syrios · Answer

Are you looking to flip and in what price point are you looking? The lower the price, the better ARV you want as the closing costs and possible overruns on the rehab budget will be more likely to eat up your profit margin.

What kind of ARV should I look for in this market?

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