ARV

8 Replies

Once you've determined your ARV (using comparable sales within the last 6 months from Zillow, Redfin, Realtor.com, the MLS, etc.), you are going to take that number and multiply it by 0.7 (ARV= $100,000. $100,000 x 0.7 = $70,000). If you are wholesaling the house, this is what your buyer would be willing to pay for the house if it needed absolutely no work whatsoever. That said, you are going to have to factor your profit into that (you get the $100,000 ARV house for $65,000 and then sell it for $70,000). Most houses will need at least some repair, if not a lot, so you will also need to subtract that from your number (if it will cost $20,000 to get the house into shape, then $100,000 x 0.7 = $70,000 - $5,000 - $20,000 = $45,000). Now you know that you will have to get the house at $45,000 in order to move it to a 70% buyer and take home $5,000 for yourself. However, depending on your market, not all buyers will buy at 70%, for some it will be 65%, others 60%. If you are keeping this house for yourself, then ignore the wholesaling fee, and you could pay $50,000 for it. I hope this was helpful!

@Katie Rye Katie if your flipping and wanting to stick to the "70%" rule your numbers would look something like this. ARV x 70 - repairs = MAO (Maximum Allowable Offer)

If the house has an ARV of $100,000 x.70 =$70,000 - repairs. Lets say it needs $15,000 so $70,000-$15,000 =$55,000 is your Maximum allowable offer, start out lower than that so there is room for negotiation.

Travis

The number to look at is the MAO number. You do not want to start out right at that MAO number though because you do not have any wiggle room in your negotiations. You can literally offer any number to the sellers, but the MAO is (should) be your upper limit for your offer. So, now that you have that MAO give them an offer slightly below your MAO, maybe 2-4%below.

I would add the 70% rule only works in the mid-range say $100k-$300k range. The lower the price of the house or the more expensive the house under and above that range, then the 30% factor ends up being not enough or too much. For example, won't work in Detroit or Beverly Hills. You might want to look at the Fixed Cost Method = MAO = ARV-fixed costs-profit, where fixed costs and profit are hard $ dollar amounts, not percentages.

Originally posted by @Katie Rye:

thanks Zack! But I would be flipping so what number would I want to look at to know the property is a "go"? Can you explain that? 

Thanks again

Katie

 How are you planning to financing the deal? Hard money or a different source?