Ever wonder how to calculate the after-market value or ARV of property you want to buy to fix and flip it? How do you know how much meat there is on the bone for the deal to make sense? Wondered how a property appraiser does their thing for the bank when you apply for a mortgage or to refinance? Let’s cover all of that right now.
If you are buying property to flip and sell, you need to be able to calculate the ARV or the After Repair Value. This is where learning how to calculate an accurate estimate of your subject property is critical. Don’t guess here, as I mentioned before, the devil is in the detail and you can’t even buy the property until you have a solid idea of what the open market will get you for it after calculating all the costs for the rehab, agent listing fees, fees for holding the property for no less than 3 months and hopefully not longer than 6 months but you always need to calculate the worst-case scenario to be on the safe side. I like to add a 5% to 10% cushion to be safe for the unexpected. No deal seems to ever work out exactly as expected in my experience. Find a lender who offers the best rates, offers a fast close of 3 to 7 days, can offer a loan to cover the purchase and rehab costs as well would be optimal if you don’t have a HELOC or IUL large enough to borrow against already that is. Ask me about the IUL if you want to learn more about how you can use the same dollar twice, it’s really cool stuff.
Zillow and Zestimates are frankly, and pardon my bad french, crap! Be extremely careful never to use Zestimates for anything! The biggest mistake is to use a Zestimate, don’t even use it as a guess. We make fun of and even have memes for Zillow’s Zestimates because they are so bad. For example, I am looking at the property today, the first one I pulled up. that just sold a couple of weeks ago. It’s a 3 bed and 2 bath at 1,380 square feet, in Redwood City, California. It closed on November 8, 2021, and I am writing this script on November 11, 2021. The property sold for $1,550,000 the Zestimate, which is a registered trademark, pause for laughter, says the property is worth $1,610,400 which would be a difference of a little over $60k over 3 days.
WHAT? No wonder Zillow put their 2,000 homes on the market and are dismantling their House-Flipping Business division. When I am on Zillow, I only care about the recently sold comps or comparable properties to my subject property that I am about to put an offer on. If I was buying a 3/2 within a block or two of this property that sold and the subject property is also pretty darn close to 1,380 square feet. I want to make sure the other options are very much the same like if it has a 2 car garage I need my comps to have a 2 car garage. Are the comps sending kids to the same schools? Does one have a better view or is a corner lot, or strange dimensions, or do you have to walk through a bedroom from the garage to get into the dwelling? If the comp has a gorgeous landscaped front and back yard, so better that be the case for my subject property as well. All these things must be taken into consideration. You want to see how long on average a property stays on the market or the DOM number which stands for Day’s on Market. This is the date from when the agent put the property on the MLM to the date it closed the sale. I would take into account this when you are guessing the amount of time it will take you to sell the property after you have made it beautiful. Don’t forget to factor in the holding costs, one of my mistakes was holding the property longer than anticipated and that ate way too much into my profits when I finally did close. When browsing properties on Zillow, look at the photos of it after it was sold. You will want to replicate these features in your own property like if they use marble in the kitchen, do the master bedrooms in all of your comps have a jacuzzi tub, etc. Don’t under rehabilitate the property if you are expecting the same ARV. Don’t over rehabilitate the property either as then when the bank sends their appraiser to assess the value of the property, you may have to lower the listing price of your property to allow your buyer to get the mortgage loan approved and that would not be a fun position to be in. That special $15,000 whirlpool tub doesn’t look like such a great idea anymore. You aren’t building the property for you to live in, you are building it for the market and the market speaks volumes in regards to what you can, or should do and not do. Don’t ignore the comps, anything about the comps, otherwise, it’s a gamble. You also want to make sure there are no unusual tax liens or other issues that would make the deal a bust if you were to continue with it. By the way, if you find a deal that’s a pocket listing or isn’t on the MLS, you can recommend the property to a realtor and then that realtor will in turn in appreciation bring you some pocket deals based on the variables you look for in a given property. Often a real estate agent may get a red-tagged property that they can’t list on the MLS, that’s a perfect opportunity for you. Try to find 2 really good comps to your property to put together your cost analysis on and build your scope of work from. Often a good real estate agent can pull the comps for you as well which can make your life easier.
One thing I have learned in real estate is that every single thing is negotiable. People in my apartment complex have no idea that I own property because I live with them in a rental. The rental in my area was offered on Craigslist for $2,400 a month. I negotiated it down to $1,900 a month and I let the apartment manager and owner know that I will not renew unless they keep me at the $1,900 a month rate. They agreed because I know as a landlord the cost to flip the unit and how long it takes to get a new lease agreement in place. I am a better deal to keep in the unit than I am to haggle over a couple of hundred dollars a month than lose me as a tenant forever. You can also negotiate with your real estate agents on their commission. Now if they are going above and beyond for you to sell your property, maybe you need to assess what is fair. Don’t negotiate for negotiations’ sake. If the agent isn’t going to do anything more than putting your property on the MLS for you, then you best negotiate that commission rate down. I have had to fire agents in the past for non-performance.
Thanks for watching and please feel free to comment below or send me a message from the healthwealthandrealestate.com website on the “Get in Touch” link at the top of the web page. There is also a calendar link here in the comments section to meet with me if you would like a one-on-one complimentary session. Please like this video and subscribe to this channel so that you don’t miss any future content which I hope you find valuable. I also would appreciate it if you shared my videos with friends and family as I love helping everyone and want to get to as many people as possible. I look forward to speaking with you very soon. Have a gorgeous day and week full of bliss, blessings, and happiness!