How accurate do you think your ARV's are?
Typically, by the time my flips are on the market, I am completely over it and ready to move on to whatever is next, so I never did much retrospective analysis. I know how much I made and generally what went wrong and right, but not much other number crunching the way I do with my other businesses.
Recently, I went back over several years and did a deep dive analysis of my flips, flips I have just invested in and other ones I have been involved with.
One thing kind of surprised me.
Basically, if you had asked me (going into the flip) my confidence level on a scale of 1-10 in the accuracy of my rehab cost and ARV, it generally would have been 6-7 for rehab cost and 9 in my ARV. I tend go in very uncertain if I have rehab costs right and wondering what might go wrong, but pretty certain I have ARV close. The reality was the opposite.
I was really accurate with my rehab costs despite the things that go wrong, but not as accurate as I expected with my ARV. In other words, my risk wasn't where I thought it was.
Which one do you think you are more accurate on and how accurate do you think it is reasonable for ARV to be on a mid-level, 6 month close-to-close flip. It may be that my expectations for how accurate I should be is unreasonable, but accurate ARV's have to be one of the keys to these iBuyer flippers that we have to compete with. Since I have recently gotten access to more data with my RE license, I have gotten kind of obsessive about fine tuning my ARV's lately. I live here AND I have the data, I should be able to be more accurate than the iBuyers.
Adjusting for changes you make along the way to your rehab plan, do you think you can be accurate to within a 5% window (10K window on a 200K house)...a 10% window?...more? Over a 6 month period.
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@Eric M. yes you can be very accurate on ARV within 1% if you know the market. Where most people go wrong is pushing ARV above comps thinking the improvements will bring a higher price. This strategy may work on higher end home but not at a $200k price point.
The key in that market is to price below comps so you really need to keep costs in line.
I currently feel about 8-9 confidence level for the ARV in my market and specifically the neighborhood. The rehab budget? Not so much probably 6 level. I'm struggling to budget for projects I'll DIY and ones I'll contract out like the big ticket items (windows, masonry, flooring, plumbing, electrical).
@Eric Michaels yes I have worked for an ibuyer and they are very accurate, however they also aren't trying to push the value based on upgrades they plan to make to the home. They are selling with the current finish level which will be more in line with market.
My ARV values are spot on but the refi appraisals are not. In my market the refi appraisals always use the low range of the comps while the purchase appraisals use comps that justify the agreed upon price which is typically not the low range of comps.
One of my last two refi appraisals I appealed and got a $60K increase. Even with the $60K increase the refi appraisal was below what I could have sold the RE for.
I factor these low refinance appraisals into my calculations so typically the refinance comes in close to what I am expecting. The other of the last 2 refi appraisals (not the one I got a $60K increase) was almost as bad as the one that I got the $60K increase (and by the same appraiser). I went to appeal and the appraiser had disappeared (literally his employer claimed to not know where he was). I was given a choice of starting process over or going with the poor appraisal. I went with the poor appraisal but believe the process was f***** up. I should not have had to leave money in the RE because the appraiser went AWOL (my view is that he was so incompetent and it was getting obvious that he left the area to start a new elsewhere).
My rehab estimates are not as spot on. I have learned to add an unexpected item factor but the issue is that the range of the unexpected factor varies from rehab to rehab. So if I have a rehab cost of $30K for know items, I will budget ~$40K due to the realization that we often encounter unexpected items. The issue is that sometimes the unexpected items are only a few thousand and other times they have been ~$25K (bad foundation with bad sill plates through the entire house). So I have had rehabs significantly over budget and unfortunately other rehabs only slight under budget.
Fudge factor: 10% on rehabs-- if you already know how to price and have experience. There is ALWAYS something unexpected that will bump up the costs. If you are new, I'd factor in 15--20% on top of your GC's estimates. I know it's a lot, but better to be prepared than caught with your windows open. Education in this business can be expensive, but once learned, it will return big-time dividends.
NOTE: a purchase money mortgage appraisal (when you are selling) will normally come in much higher than a cash-out refi (when you are BRRR'ing). That's just the nature of the appraisal business, so factor that in.
Originally posted by @Aaron K.:@Eric Michaels yes I have worked for an ibuyer and they are very accurate, however they also aren't trying to push the value based on upgrades they plan to make to the home. They are selling with the current finish level which will be more in line with market.
I hear what you are saying but from my standpoint, I am always trying to push value because I am not doing 100 of them. I need to get the most out of each one. If I think the top value on a property is 260K out but if an iBuyer just calls his ARV 250, then lists at 250 and gets 250, I am not sure I call that accurate if he could have possibly gotten 260. It looks accurate because he hit his number, but....
That is like an archer saying, I am not going to aim for the bullseye, I am just aiming to get it on the target board. And then when he does get it somewhere on the board, he crows about his accuracy because he hit HIS target. I am trying to aim for the bullseye and seeing how close I get.
Originally posted by @Greg Dickerson:@Eric M. yes you can be very accurate on ARV within 1% if you know the market. Where most people go wrong is pushing ARV above comps thinking the improvements will bring a higher price. This strategy may work on higher end home but not at a $200k price point.
The key in that market is to price below comps so you really need to keep costs in line.
The only way to be within 1% , IMO, is if you are pricing below comps as you indicated, and leaving some money on the table. That is not what I am trying to do. Of course comps are always a range, but based on my rehab, I am generally trying to get top of the range. Maybe that is not always realistic.
Let's say comps are 290-300. Sounds like you would list at 290 or even lower, sell at full list and call your ARV exactly accurate. I wouldn't. I'd list at 300 and maybe sell at 291. I would make more than you and maybe should be happier with my sale...but I'd still consider my ARV off by 3%.
Just a different way of looking at it.
@Eric M. the iBuyer will buy at $250k list at $265k and hope to sell at $257k. Sometimes they sell at $265k sometimes $257k sometimes $250k and sometimes $245k. However on average they are accurate, and try to push for more value where possible in case they were wrong on the low side when they made the offer. This helps cover the losses for when they buy over what something is worth. However they do not go into a property expecting the best case scenario all the time.