What to do if final ARV is lower than expected

Question

Hi,

Knowing that BRRRR involves in getting an ARV thats high enough to get your initial investment back, I wonder what's the best thing to do, let's say when your final ARV happens to be less than expected. Should I immediately sell the house? I assume with low ARV, your rent will probably not going to generate enough cash flow anyway. Has anyone been thru such case?

Andrew Postell · Answer

@Mike Toole there are lots of things that are really important when doing the BRRRR method.  On your first deal you won't be very good at any of them - negotiating, knowing your rehab budget, ARV, timing, holding costs, how to detect "surprises", etc.  But you should be somewhat familiar with how to calculate ARV and your rehab costs.  And being able to do it on your own is super important.  Meaning, we aren't going to take a wholesalers word on it....we are going to do our own math.  It is completely reasonable that even the best of us aren't going to get the ARV 100% accurate - but being a range is something that you should plan on.  The appraiser is human too.  So they might think your home is worth a slightly different amount.  So there will be some type of % that you should factor in to your estimate.

Now, what if you don't know what you are doing at all?  Then get another investor to double-check your work.  Most of us are willing to be helpful....as long as you don't abuse it.  And a local fellow real estate investor in your area will be the best type of investor to lean on.  Someone who is familiar with the market.

And just in case it matters - my first BRRRR I purchased for $7,000.  Rehab was $23,000.  And the After Repair Value was........$30,000.  If you are new, that's pretty terrible.  But I still made a bunch of money.  I just had to hold the property a little longer.  Real estate is very forgiving if you need it to be.

Anyway, hope this helps in some way. Thanks!

Sean Julian · Answer

I’m kind of in that boat right now, but my rent came in much higher than expected. So, the low ARV can only hurt my refinance (if the appraiser really shoots low) not the rent.