My wife and I are just about to pull the trigger on our first BRRRR. I'm hesitant to use comps from this summer, however, to calculate ARV as that timeframe represents a different landscape in the home buying market. Now that things are cooling off as interest rates rise, any tips on how to calculate ARV? Specifically how to anticipate appraisal value post-reno with far fewer comps?
Investor · Member since 2021 · 591 posts · 695 votes
3y
@Mick Murray GREAT question! (and, unfortunately, I don't think anyone has a fool-proof answer).
Although nobody knows for sure what the market and values will look like in 6, 12, or 24 months, the one thing we DO know for sure is that the market is changing rapidly, and rates will likely continue to increase at least in the short term...
Personally, I would be very conservative with ARV estimates right now (and, quite frankly, I personally wouldn't pursue any strategies like flipping or BRRR'ing that require hypothetical future values to pencil out--that's a bit too speculative for my tastes, given the market.) ...however, if the property was a home-run cashflower right out of the gate (with no or minimal reno), and I knew I could easily rent it if my BRRRR or flip plans fell through, then I might go for it...but, I'd definitely want multiple exit strategies, and would not want my whole plan resting on hitting an ARV, or being able to refi into a hypothetical future rate...
Lender · Member since 2020 · 129 posts · 113 votes
3y
Hey Mick...that's a great question because as you mentioned the comps they use are not necessarily up-to-the-minute. In our experience for our borrowers the best way is to simply look at the comps from the timeline appraisers are required to recognize. But I guess a lot of it depends on the purpose...are you awaiting an appraisal to determine numbers from your lender?
The purpose for the question now is to determine the purchase price. We're looking at several properties, and to calculate the ARV we're looking at comps from the last 6 months. I hear in your initial thoughts that appraisers will still be obligated to look at comps in that time period? That they won't only look at comps from the past, say, 45 days (since rates have really started to cool the market)?
We'll be refinancing through a local bank, and my lender said they will order a drive-by appraisal to determine value after the reno.
Lender · Member since 2020 · 129 posts · 113 votes
3y
ahh got it...i misinterpreted...so typically lenders--be it banks or standalone shops--want 2 sales within the last 90 days to reflect the market (if you knew this already, my apologies) but that isn't necessarily a rule. so they would look at comps within last 45 as long as they are true comps...it gets tricky when you get an appraisal, say, today, and that tells you one thing but then you get ready to sell or refi in 6 months and then the market has really changed.
but for your purposes, appraisers should be good to look at recent comps so long as they are comps...so when you are assessing, obviously you know what is an isn't a comp in a general sense so you should be able to get a good handle on an approximate ARV so long as you are, in fact, looking at eligible comps.
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
3y
I would either look at comps within 60-90 days or discount the comps from the past 6 months. On the % discounted it'll depend on your market, could be 5-15% off of that. In my market appraisals are still going okay but as we get to Dec/Jan we'll see since the older comps won't be used(Spring/Summer)
That's great... confirms my suspicions that the comps of June/July alone are not enough to substantiate price/sf now. Need to look at true comps within last 45-90 days, and/or discount older comps relative to market shifts. Very helpful, appreciate it!
Investor · Member since 2021 · 591 posts · 695 votes
3y
@Mick Murray GREAT question! (and, unfortunately, I don't think anyone has a fool-proof answer).
Although nobody knows for sure what the market and values will look like in 6, 12, or 24 months, the one thing we DO know for sure is that the market is changing rapidly, and rates will likely continue to increase at least in the short term...
Personally, I would be very conservative with ARV estimates right now (and, quite frankly, I personally wouldn't pursue any strategies like flipping or BRRR'ing that require hypothetical future values to pencil out--that's a bit too speculative for my tastes, given the market.) ...however, if the property was a home-run cashflower right out of the gate (with no or minimal reno), and I knew I could easily rent it if my BRRRR or flip plans fell through, then I might go for it...but, I'd definitely want multiple exit strategies, and would not want my whole plan resting on hitting an ARV, or being able to refi into a hypothetical future rate...
Real Estate Agent · Sarasota, FL · Member since 2020 · 140 posts · 75 votes
3y
I think the previous comments covered it, but also looking at current listings could help. When the markets are cooling, some banks require 2 comps within 30 - 60 days and also include a current listing.