Need Help Understanding ARV In Determining A Good Buy
I recall reading about ARV (After Repair Value) and how it helps to determine if a property is a good buy or not.
Can someone help me understand this important tool and how I can use it to help determine if I should even consider purchasing a property or not. I remember percentages but not the whole theory.
ARV is just the potential value of a property after it’s rehabbed or repaired. Not what it’s worth in its’ current condition.
For example, let’s say a house would be worth $150k if it were in at least comparable condition to everything else in its’ market. And let’s say it needs $10K worth of work to get it into that condition.
Well, if the seller wants $140k for it in its current condition, there’s obviously no deal there. But if the seller only wants $110k for it, then you may have a potential deal.
But when you’re evaluating any property, you also have to determine things like the holding costs or payments while you fix it and try to sell it, any marketing costs or agent commissions, closing costs, potential loan costs, potential discount in price to get it sold, etc, etc.
Remember, just because a house may appear to have some gross profit doesn’t necessarily mean you can make any money. You have to look at what you can net. And you have to be realistic.
Just my 2¢