5 Things You Shouldn’t Forget About Rehabbing, But Probably Have
If you’re interested in getting into flipping, and you’ve seen our show Flip or Flop, you know that Tarek and I have really been around the real estate block. We’ve seen all of the dreams and nightmares that go along with flipping a house, and we can tell you more than a few funny stories about our experiences as we went out to find and flip houses. We have more than a little bit of wisdom and experience to share, and we help new real estate investors with our Success Path Education program, too.
Of all of the things we’ve learned along the way, I can tell you that there’s one number that stands out above all of the other facts, figures, and pieces of advice we can dispense: the ARV. Short for “after repair value,” when you’re flipping a house, this is the most important number in the world. Knowing the ARV of our properties has helped us quickly figure out whether we had a “flip or flop” on our hands more than once!
What Is Your Flip’s ARV?
When you’re flipping a house, its ARV is the value you can get for it after you’ve done all of your repairs and rehab. Once you know your ARV, you can tell how much you can afford to pay for the house and how much you should put into rehabbing it by applying the 70% rule.
Basically, the 70% rule states that you shouldn’t spend more than 70% of your ARV on purchasing and rehabbing when you find and flip a house. So, let’s say you’re looking at a property, and—based on market values—you’ve determined that its ARV is going to be no higher than $360,000. The seller is asking for $250,000. Should you take it? Well, 70% of 360,000 is 252,000. Can you rehab a house with just $2,000? I’d have to negotiate a lower price or walk away!
How to Determine Your ARV
So, now that we’ve talked a little bit about how much you should spend on a house based on its ARV, let’s talk about how you can find a property’s after repair value. You can get an accurate estimate of your ARV based on comparable sales in the area. Look at houses in the area that have sold recently or that have just been listed, and be sure to look at similar floor plans and sizes.
If larger houses are selling for less money than you need to make on your house, you might need to walk away and find another deal (if you haven’t already made the purchase). On the other hand, some creative and updated rehab work can really bring the value of a house up. Take stock of how much it will cost to do the repairs you need and how much they will actually affect your ARV before you commit.
Tarek and I have put a lot of work into a system that helps you figure out your ARV, get an edge, and get ahead of the game. If you haven’t been to one of the introductory Success Path training workshops, please call our office and find out when they’ll next be in your area. You’ll get a lot more in-depth information and training to be a real success.
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