How do I determine new equity after rehab?

Question

Hello,

I am working on an off-market deal for a property that has a 3 family and single family.  The single family has been grandfathered in by zoning.  However, the current state is like a garage.  There is no basement, the ground level is not habitual and is used as storage, and the 2nd level is a 1 bedroom.  I would like to turn it into a 3 bedroom single family.

How can I pre-determine the value after rehab?

For simple numbers, let's say the property in its current state is $100K.  After rehabbing the single family and adding sq ft that costs be $50K, how can I determine the ARV?

Tomorrow I plan to have a contractor come give me an estimate to rehab.  Do I need an appraiser next to determine the current value?  Then how do I determine the after rehab value?

Brent Coombs · Answer

@Ray Hayward, the ARV is determined by recent comparable sales (comps). There must be SOME sold properties around there that have similar square footage? Then you work BACKWARDS to find out how much is practical to spend on it and the maximum you should Offer for it.

Please note that spending say, $20k on rehabbing is no guarantee of a $20k increase in value, leave alone trying to get it to increase by more than that.

Also, Appraisals are no guarantee of actual market value either. (Look out for their "all care, but no responsibility" clauses)! Keep learning. All the best...

Manolo D. · Answer

You might want to buy a book first before throwing yourself in the ocean.