ARV - 70% of retail value?

5 Replies

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?

I don't understand. What do you mean 70% of retail value to calculate the ARV?

ARV is the same thing as "retail value" once the rehab is completed.

I think we have some of the terminology mixed up.

ARV - After Repair Value. This is what the house is worth AFTER all the fixing and cleaning up. This is the regular market price a house will fetch if it was nice and similar to the rest of the neighborhood. Not too fancy and not too crappy.

You want to buy a distressed home that need an influx of capital/sweat equity to make it nice.  You pump 20K (or whatever) into the house to make it a "comp" to the rest of the neighborhood.

You arrive at YOUR purchase price by figuring out the ARV, taking 70% of that value minus the capital you pump into it.

If the ARV is 100K, and needs 20K to get it to that point, you buy it for 50K.

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.

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%.

Originally posted by @J Scott :

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%.

Thanks for the clarification.