Hey guys Im trying to pull off a BRRRR in my area and I'm curious to know exactly how can I estimate or determine the ARV? Is it by comps in my area? or Is it best by using the rent that it can command after the rehab?
I've found it useful to learn how to figure this out on your own via sites like Zillow, Realtor, and Homes.com. Do this enough and you begin to quickly identify trends based on all sorts of indicators like age of property, square footage, bedroom/bath count, etc. You can and should also ask your realtor to pull comps within a 0.5 radius of the property based on recent sales prices. It's not a perfect science, but you only need to be ballpark with the figures I find. Lastly, you may also consider hiring your own appraiser, but no guarantees that the estimate ARV they find is going to be the same as the lenders appraisal. Good luck!
@Tyrone Osilesi thanks I appreciate the input 1 thing is I'm a realtor myself and the most recent comps I come up with seem to be lower than what I expect this place to be worth because they were bought as is and the conditions they were in was pretty bad and the new owners haven't done anything to bring them up.
@Gerardo Lewis Well... that might be problematic if that is the only comp for the appraiser to pull. If you move forward, I would get an "as is" and "subject to" appraisal to determine value before you close. That can help mitigate the risk.
@Gerardo Lewis what loan type will you be using on your "Refinance" step?
That’s the plan if I can pull it off for a fsbo but the appraisal condition is something I didn’t think of so I appreciate that. Now it just depends on if I can bring a good enough deal to get them to sell.
To be honest I didn’t think about that nor did I know you can use different kinds of loans for the cash out refi. Any tips on which loans to look into then??
@Gerardo Lewis sure, and this is important because some loan types will go off of "Comparable Value" as mentioned above (sold comps) but some will go off of the "Rental Income" value. Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”
Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money. These go off of "comparable value".
Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different. Sometimes they will go off of comparable value but most of the time they want to see the rent from the property.
Anyway, hope this helps in some way. Thanks!
With BRRRR projects you are going to rehab the project so you want to use comps that reflect the condition of your property after the rehab. I am assuming you will be using a residential mortgage so comparable sales approach is what you will use and you will meet the seasoning requirements, which very's from lender to lender (6-12 months). Since you are a realtor you can run your comps through the MLS.