Live in Flip- Calculating ARV for 2 years in the future?

Question

Hey guys,

I've recently started looking into doing a live-in flip.

I've come across a few houses that would meet my criteria for a standard flip- my question is how do those of you who have gone this route find an ARV that you are comfortable with for 2 years from now when you sell?

Obviously a few years ago the market was tanked- so it was obviously going to go back up. But at this point I'm actually anticipating housing prices to cool down a little in the next several years....

Thoughts?

Natalie Kolodij · Answer

Thank you Ingrid J.

I don't have access into MLS but know people who do. I'm just wondering what key factors people considered before buying their own long term flips like this.

Patricio P. · Answer

The concept behind estimating ARV is by using comps that are similar and have sold recently and then making the necessary adjustments. None of us can predict the future so estimating ARV based on a prediction is purely speculation. Instead, you should calculate ARV the traditional way and see what it would be worth now. If the numbers make sense now then go for it, otherwise its best to pass. You really can't depend on appreciation to bail you out of a bad deal. At the same time, even a great deal now if held for two years can turn south if the market tanks. Make sure you have multiple exit strategies in case things don't go as planned.

Patrick Lynch · Answer

Natalie ...just be careful with the paint it may contain lead... also Home depot has great rehab financing... 8% at 84 months ...interest only for the first 6 months ...you may have to open a commercial account but that I am not sure of... also Zillow has a great design section on their web site if you are looking for idea's and pricing for kitchens and baths. Good Luck

Patrick Lynch · Answer

if you are planning to do the work yourself and can stand plaster dust destroying your electronics and furniture,horrendous paint odors you might be ok. the contractors doing the rehab will definitely not like it. rent a trailer with a bath and kitchenette and live in the driveway until completion. doing this will be better for everyone's sanity! working around peoples prized possessions is anything but fun and will cost you a lot more. trust me ...you do not want to live in a rehab ...your lungs were not supplied with filters you change every so often...  I recommend in the strongest possible terms you do not ...especially if the house is older than 40 years old  in the age of lead paints and asbestos products.  Doing little projects one at a time or one room at a time will work if you have that kind of time. Buy a 16 gallon vac with extra hose lengths and extra filters to keep up with the mess and the dust.  Good luck

Natalie Kolodij · Answer

I am planning to do the work my self

It's not a studs out flip. It's flooring, removing popcorn, new kitchen, new baths. But everything there is totally functional- just original from 1970.

Ingrid J. · Answer

@Natalie Kolodij I don't know if you need access to the MLS for this, but over here you can find the average growth and inflation rate in a national real estate listing service. If not perhaps a local realtor is in possession with the past years development in the market? Best of luck.

Natalie Kolodij · Answer

Well Ideally....I'd own it for 2 years (so I don't get hit with the extra tax)

And renovate out of pocket during those two years.

Kyle Penland · Answer

You can't buy for appreciation in 2 years.  Next year we could hit another major recession which would cause your 2 year time plan to go out the door.  My last live in flip, I made a lot of money on for two reasons.  We lived in and made our renovations out of pocket instead of borrowing against the home, and we waited for the exact time to sell it.  The time where it peaked.  So with that said, live in flips are GREAT, but you have to be flexible enough to know that it may take 5 years before you can sell it for top dollar or could only take 6 months.  Basically it will all depend on your timeline and when you are ready to bring it to market.