ARV - 70% of retail value?

[Kim Knaust]

We have several properties we are looking at purchasing but was unsure of where the seller got their ARV #'s - when I asked she said they just use 70% of the retail value to calculate the ARV. What are thoughts on how accurate this is?

[J Scott]

Originally posted by @Greg Hamer:

ARV * 70% - Repair Costs.

ARV (100K) * 70% = 70K

70K - Repair Cost (20K) - 50K

The 30% difference is basically your profit margin for doing the work.

The 30% difference is both the profit *and* the fixed costs for the project, which fixed costs include:

- Purchase Costs (closing costs, inspections, appraisals, mortgage points, etc)

- Holding Costs (taxes, insurance, utilities, mortgage principle, etc)

- Selling Costs (closing costs, concessions, etc)

These fixed costs generally run between 10-20% of the ARV, depending on how long the property is held and how the property is financed. Which means the actual profit is only 10-20% of the ARV, not 30%.