When you say 70%ARV, what is your expectations?

Question

Hi BP

My non-investor broker said something that struck me yesterday.
She said, that I'm not a "normal" investor bc I flip 150-200k homes here.
these are 1200-2500 sqft homes in 50-70k income range.
They are older 50 yrs old home that need TLC.

She says most investor prefer the 20-80k deals.

Again, I know, only what I know, and I just started as an agent. I've already go a few investor knocking at my door.

I have found deals in my "farm" at 70% or below. Now I am worried that they are expecting the latter, 20-80k deals?

Their only criteria is 70% ARV, or 70%ARV -repair, I got financing. Anywhere. (in our city and surrounding areas)

I thought as long as there is a market and number works, who cares what the property is.
SFH, Condo, townhouse, commercial, multi-unit

but I can be wrong, please help me be a better investor/realtor

J Scott · Answer

Have you asked them what they're looking for?

Steve Babiak · Answer

Some people use a rule of thumb that an owner occupant can afford a house 2.5 to 3 times their annual income.  Not using a calculator, 80K/3 is under $30K ...

Now, some lenders use(d) different higher multipliers - 6 to 10 times in some cases - and end up with foreclosures.

Looking at your example, for your $1000 rental, that means $36K annual income.  That's no different from how I would treat that renter.

Samantha M. · Answer

Steve Babiak

I know the numbers are going to be different here in Texas, but where do you get the 30k threshold number for rentals. You need 3X rent to get a good tenant in your place. A typical rent rate for a 1200 sq ft home here in TX is $1,000 to $1,2000 monthly. Someone making 30k or less will not be able to afford that unless your targeting tenants that need housing assistance.

Thanks for your clarification.

Steve Babiak · Answer

Keep in mind that there are numerous investing strategies.  Those $20K to $80K are oriented toward being rentals, with landlords as the target end buyer; or they are for that group of owner occupants who have less than $30K annual income.

This buyer you have mentioned might be more than willing to flip a property to some owner occupant making more money than that, ans this buyer probably wouldn't consider properties in the higher price range to be rentals.

Now, the MLS does have some statistics built in.  You can identify the median price for say a 3BR 1BA in an area, and then whenever a 3/1 or 3/2 pops up listed below that median, then you can pass that along for consideration; or you just look at it more closely to see what ARV would be.  Then you still have to "guesstimate" a repair amount of course ...

J Scott · Answer

70% ARV generally means that they want the purchase plus renovations to be less than or equal to 70% of the resale value.

Jennifer Lee · Answer

At j scott I tried but they kept saying as long as 70%ARV lol
Like I got magic button on MLS to search that lol
Hahaha guilty,  I thought that too, before my license.

I just want to ask what you guys think when you or if you say 70%ARV personally.

Or if you are an agent, what you do or ask?

Terry Portier · Answer

Sounds like if you found a nitch you should be the mentor. Get your broker, investors straight. Don't worry about the norm, I never do ;)

Jennifer Lee · Answer

Both bc we aren't at contract stage so just feeling them out.
 Got one signed buyer contract. And just sent them the listing.
And it got me thinking...what if this isn't what they are looking for.
They arent local

J Scott · Answer

Hi Jennifer,

Not sure exactly what you're asking here...you've wrapped up a couple different issues/questions into one post.  Are you are concerned about investors not likely the price point of the properties you bring them?  Or are you concerned that they won't like the type of property you bring them?  Or both?

When you say 70%ARV, what is your expectations?

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