Calculating After Repair Value

12 Replies

First, I'd like to say hello to everyone here at BP. I'm a wholesaler here in Memphis. This is an AMAZING forum, and I'm glad to be associated with it.

I don't want people to think I'm lazy and didn't search this topic before posting, because I did. I just didn't really get a clear answer from the previous threads. I've developed a relationship with a real estate agent and get comps from the MLS here in Memphis. So my with that being said here's my question:

Once I have my comps, how am I getting ARV from them? I watched a webinar that said take the average of 3-5 comps and that gives you the ARV. I've watched others that say take the 3 lowest and average. Others say take the three highest. So once I have the comps from the MLS, whats next?????

The way I was taught is to average all the RETAIL sales to get the ARV. Look at the sale info to determine if it's a retail sale or a cash sale to an investor. The retail sales will usually be the higher prices and will mention a loan used to buy the property. The investor sales usually are lower and purchased cash. Once you have your retail sales, have looked them up to make sure they actually compare, and make sure they are within .5 miles of the subject property(this one is especially important here in Memphis), just average them out and there's your ARV.

With all that said, I have found that here in Memphis the ARV is not as useful as people make it out to be. First reason being, most buyers in this market are buy and hold investors and could care less about the market value as they will be renting. Cash on cash return is what will interest most of them. Secondly, ARV and how to figure it out is different from investor to investor. The amount and quality of repairs an investor is willing to do varies as well. A lot of buyers I have dealt with look at it as an imaginary number and simply go by the current market values for the area to do their calculations. Things have gone easier for me when I just go by the current market value and use that number in my calculations instead of trying to figure out what the house MIGHT be worth IF certain repairs are done.

DISCLAIMER: I still consider myself a newbie and have a lot more to learn. Don't take what I'm saying as the gospel here....just sharing what I've learned from my experiences so far.

As you are in Memphis you have to decide who your target buyer is. The fact is there is almost no such thing as a meaningful ARV in this city. We buy homes for 50K and sell them for let's say 70. Our competitors might sell the same home for 90K. An owner occupier will pay 115 for the same house.

We have so many distressed sales and so many wholesalers that really ARV is quite meaningless. What you need to work out is who are you going to sell to and that will help you establish some sort of value. We use net return to get to our ARV for example.

Originally posted by @DeMarris Manns:

I've developed a relationship with a real estate agent and get comps from the MLS here in Memphis. So my with that being said here's my question:

Once I have my comps, how am I getting ARV from them? I watched a webinar that said take the average of 3-5 comps and that gives you the ARV. I've watched others that say take the 3 lowest and average. Others say take the three highest. So once I have the comps from the MLS, whats next?????

 Why not just ask?  Get the opinion of the agent who gives you comps.  Go onto sites like Trulia or (I cannot believe I am saying this!) Zillow and get their values.  These will not be numbers for you to use, but will give you the algorithm generated values of these two sites. With both of those plus the opinion of the agent, you can follow the steps laid out by @Marty Boardman  and @J Scott in their document and begin to come up with your own ARVs on properties.  You can compare your values with those of experienced agents (provided the agent you dealing with is experienced enough to give those to you) and the computer generated values and see how close you are.  

This is a learned process and you only learn how to do it by practice over and over. 

This might sound crazy to some, but most of the time, I actually go by the lower end comp numbers too. It tells you mow much investors are spending in that area right now for as is properties. It takes some of the guess work out in my opinion.

If you look at the comps and see 3 or 4 of them were purchased by the same buyer (which I find a lot), and they all were purchased between 22-26k, you see where your price needs to be and who you might be able to make an easy sale to.

@DeMarris Manns do you mean what % are wholesalers buying at or end investors?

We buy homes roughly at 50% of ARV and we are selling them at around 80% of ARV in terms of what banks would value them at.

Originally posted by @Dean Letfus :

@DeMarris Manns do you mean what % are wholesalers buying at or end investors?

We buy homes roughly at 50% of ARV and we are selling them at around 80% of ARV in terms of what banks would value them at.

 Cool thanks! 

There are definitely different opinions on how to generalize what to do with comps but if you get actually comparable sales I think it is best to look at the lower end comps. It's a way to pad in extra money for your buyers and keep them getting there cut especially early on in your wholesaling career while your rehab costs may not be pin point accurate. Just a thought to stay conservative with your numbers....

Originally posted by @Ben Grotte :

There are definitely different opinions on how to generalize what to do with comps but if you get actually comparable sales I think it is best to look at the lower end comps. It's a way to pad in extra money for your buyers and keep them getting there cut especially early on in your wholesaling career while your rehab costs may not be pin point accurate. Just a thought to stay conservative with your numbers....

 Great advice there....thanks!

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