When looking at purchasing a property for a fix and flip it is important to know what the ARV (After Repair Value) of the property will be after you are done rehabbing the property. The ARV will help dictate how much money you should purchase the property for and how much money you can put into the rehab.
When determining the ARV, you have to pull comparables within the neighborhood or surrounding neighborhoods. By comparables, if you are looking at rehabbing a home that is 1,200 sq. ft. and you aren’t going to add square footage, you only look at homes that are near that square footage. It will not help if you are looking at homes that are 3,000 square feet because that won’t give you a good idea for what the property will sell for. Choose 5-8 properties that have the following similarities:
- Square footage
- Style (ranch, two story, multi-level, etc)
- Exterior (brick, stucco, vinyl siding, etc) -Unless you plan on changing the exterior of the home
- Amenities (Backyard, Walkout, Attached or Detached Garage, etc) -Unless you plan on adding a garage or a backyard
After you have identified the 5-8 properties that are very similar to the property you are looking at rehabbing, with the exception of level of finishes and whatever you plan on adding, take the average sold price of the homes. That is your ARV.
To determine if the home will make you a profit, look for our future blogs!