12 Steps to Determine the After Repair Value (ARV)

by | Mar 8, 2017 | Blog

Every investor needs to be able to determine the After Repair Value (ARV) as close as possible, prior to ordering an appraisal. In order for a property to be considered comparable to the subject property, it needs to meet certain criteria. I have put together a list of twelve criteria that will help you get as close as possible to the ARV.

Try to find at least three comps. Remember, one comp is not enough to determine the ARV in most cases. You need to find at least three in order to determine the ARV because this is how an appraiser is going to do it. 

Stay within the major subdivision of the sub­ject property. Try to find properties that are as close to the subject property as possible. Don’t travel over one mile or into other unrelated subdivisions to get sold comps, unless you absolutely have to do so. 

Do not cross any major roads or highways. Sometimes crossing a major road, intersection, or highway, etc., can give you a false impression of what the value might be as one side may have higher values than the other side for similar properties. You may not understand why until you drive the area to see. Certainly, if you cannot find any comps (or enough comps) you may have to cross over to find some. 

Stay within the tightest timeframe that you can. Start with comps that have sold in the last 90 days or less, and then incrementally expand your timeframe to one year if you cannot find enough data. 

Find homes built in a similar time period. This means homes built in the 1920s and 1930s should not be compared to homes built in the 1980s. Find homes built around the same time period when looking for comparables, generally, plus or minus five years at the most. 

Find homes with similar square footage. Plus or minus around 15% can be a good rule of thumb to follow to find enough data to utilize. So if the sub­ject is 1500 square feet, select a range that goes from 1325 square feet to 1725 square feet.

Look for similar style homes and/or a simi­lar builder. Tract neighborhoods are much easier to evaluate than an area with custom-built homes because many of the homes were built around the same time with very similar floor plans. You can have neighborhoods that have a mix of both. There are subdivisions and neighborhoods that have a combination of everything–older custom homes, newer custom homes, older tract homes, and newer tract homes. Be sure you are comparing the right ones when doing your evaluation!

Look for similar school districts. There are subdivisions that can cross school districts that are right next to one another with similar homes to the subject. However, one area sells much higher/lower than the other, and you cannot figure out why. Be sure to look at the school district because it can have a major impact in determining value.

Don’t just pick the highest sold comp(s). Many new investors like to go straight to the highest sold comp and use that to determine the value. Look for comps that are in similar condition as the subject is going to be once completed. When an appraiser is doing an appraisal like this, it is called a “subject to” appraisal, which means the value is subject to the underlying improvements that are listed in the actual appraisal document. Also, it takes at least three comps to determine the value and not just one (and certainly not the highest one).

Look for any external influences. This includes things like is the property on a busy street, does it back up to the commercial property, are there high ten­sion power lines above the house, does it back to rail­road tracks, is it across the street from a school, does it side to a four-lane through street? Any of these things can have a negative impact on the value. Of course, do not neglect any influences that can have a positive impact on the value such as backing to a golf course, a wooded lot, lake view, or nature preserve.

Look for any functional obsolescence. Things like walking into one bedroom to get to another bedroom (known as a deficiency), or $20,000 worth of appliances in a $90,000 house (known as super adequacy) are examples of obsolescence. This is something that you must take into consideration, and whether it is curable or incurable.

Subtract any seller concessions if they exist. If the seller gave the buyer $3,000 towards their closing costs, this will be reflected in the listing on MLS and needs to be deducted from the sales price of that particular comp.

That’s a lot of stuff, so be sure to review it again! Once you have all of this data, take the three best comps you have, and start comparing them to the subject a bit more. Keep narrowing it down based on the data above until you can determine yours after repair value (ARV). For example, if you have three sold comps that are $145,000, $150,000, and $147,000, the value is probably going to be somewhere between $145,000 and $150,000. So if you go with $147,500 you are probably going to be extremely close to the ARV.

If you have a Real Estate deal and looking for an experienced and award-winning hard money lender in Texas, please contact us today!

Set An Offer Goal Every Month

by | Feb 15, 2017 | Blog

There is an old saying in real estate investing circles, “If you’re not making offers, you are not going to get deals.” It sounds so simple, but you would be surprised how many investors I speak with on a regular basis who say they cannot find deals.

My response is usually, “How many offers did you make this month?” Their reply is none, one, or some very small number. The bottom line is it’s a numbers game, and you will need to make many offers to get a deal under contract.

How many offers does it take to get a deal under contract? It’s a difficult question to answer. You might make one offer and get a deal. That would be great if it happens, but it can also make you jaded into thinking it’s that easy.

A Story to Illustrate My Point 

When I first started utilizing direct mail campaigns many years ago, I got very lucky and got two very good deals under contract that I was able to wholesale quickly and make money. Because of this success, I stopped talking to wholesalers and didn’t make any offers on MLS deals. I also failed to follow through on some of the other direct mail leads I received because they didn’t seem to be as good as the first two deals I wholesaled.

So guess what happened? I had no deals working, and my phone wasn’t ringing like it did the first few weeks after I launched my direct-mail campaign. This was a big mistake and set me back a couple of months before I got my next deal. Sometimes you have to learn things the hard way, and I was certainly no exception to this.

What was I thinking? Because they came so easily, I falsely made the assumption that my phone would keep ringing and I would get more deals just like the first two. I also made the rookie mistake of thinking if I make too many offers, how would I handle all of the volumes if they were all accepted? It’s crazy what you think might happen when you are just getting started. When neither of these things happened, I realized that I had to start making offers and do it consistently. These offers now included REOs listed on the MLS as well as wholesale deals. I also realized that a direct-mail campaign needs to function as a campaign and not as an isolated event.

My Advice 

My advice as a hard money lender is to make as many offers as you can until you start seeing results. These can be offers on MLS deals, offers to wholesalers, or offers directly with the owners of record of a property. Just as you would set a goal for the number of deals you are going to do, or the amount of cash flow you want to make, or the profit amount you are targeting, you need a goal for the number of offers you are going to make each month, because you will not reach your deal goal without an offered goal.

Finding a Good Hard Money Lender

by | Jul 22, 2015 | Blog

Hard money is a type of real estate loan that is an alternative form of financing. If a traditional financial lender is unwilling to approve a loan, or a loan is needed quickly, hard money is sometimes the only option left. Hard money loans are primarily based on property value, rather than solely on the borrower’s credit worthiness. Hard money loans typically have higher LTV (loan-to-value) ratios than most bank financing allowing a borrower to leverage more of their own money, and bring less to closing.

What is a Hard Money Lender?

Hard money lenders are basically private individuals or companies who lend capital in order to finance real estate deals for business purpose. Hard money lenders fill the void that banks and traditional lenders refuse to do, by loaning on distressed properties and providing the funds necessary to rehab/renovate a property. Hard money lenders offer programs with rates, terms, and fees that you’ll need to understand before signing on the dotted line. Keep in mind that fees and rates are generally higher than traditional loans, due to the fact that there are more benefits by using a hard money lender.

How to Find Hard Money Lenders

A quick Google search using the phrase ‘local hard money lender’ will likely show a number of potential lenders you can possibly use. Your local meetup group or REI (Real Estate Investor) club is a great way for you to find a reputable hard money lender.  Networking with like minded people at these meetings or events will help you find the lender, as well as other resources you may need, to have a successful deal.  You can also search on www.aaplonline.com which is the American Association of Private Lenders website.  Members of this national organization agree to follow a code of ethics that was developed by experienced lenders.

What to Look For in a Hard Money Lender

Here are some key traits that every reputable hard money lender should ideally have:

1. Expertise

Any hard money lender should have expertise not only in real estate financing, but also real estate investing.  There should be at least someone on the hard money team that can provide real world experience in rehabbing property, flipping property and/or renting property.  You will gain tremendous value beyond just the loan by using a hard money lender with this type of experience as they can help you evaluate your deal and make sure the returns you are expecting are actually achievable.

2. Speed

As the availability of deals has transitioned from MLS to wholesale in many markets, the ability to close quickly is a competitive advantage.  A hard money lender should have the resources in place to approve your application quickly (less than 24 hours), get your deal evaluated, and process and close in the required timeframe.

3. Transparency

Trustworthy hard money lenders will fully disclose all of their fees, rates, and terms of the loan that they are offering you.  By doing a little homework, you should be able to quickly determine if  you are working with a reputable lender that you want to fund your loan.  Also, a good hard money lender will treat you professionally and be very respectful of your current situation and financial goals.

Investmark will address any of your questions or concerns about hard money lending. We’re a highly respected name in Texas when it comes to hard money loans. Contact us so we can share our knowledge and expertise with you today.