How to Run Comps of the After Repair Value on a Fix and Flip Property
Investing in a fix and flip property can be a lucrative business. It’s about buying a distressed property, making necessary improvements, and then selling it for a profit. But to be successful in this venture, you must have a precise estimate of the after repair value (ARV) of the property. This value determines how much the property will be worth after all the repairs and upgrades are made.
UNDERSTAND YOUR PROPERTY'S FEATURES
Identify the key features and attributes of the property you’re working with. Consider things like:
- Square footage
- Number of bedrooms and bathrooms
- Age of the property
- Location
- Amenities (e.g., swimming pool, garage)
IDENTIFY COMPARABLE PROPERTIES
Find at least three to five similar properties that have recently sold in the same neighborhood or nearby areas. They should have similar features, age, and size. You can utilize online platforms, local real estate agents, or county records.
ADJUST FOR DIFFERENCES
No two properties are exactly alike. Make necessary adjustments for differences such as condition, location, and features. For instance, if your property has one more bedroom than a comparable, you might add value for that extra bedroom.
CONSIDER THE COST OF REPAIRS
List down all the repairs and improvements that are needed. You should include everything from essential repairs like fixing a leaking roof to aesthetic upgrades like painting. Get quotes from contractors or use your experience to estimate the costs.
CALCULATE THE ARV
After making the necessary adjustments based on differences between your property and the comparables, calculate the average selling price of the comparable properties. This will give you an estimate of your property’s ARV.
Here’s an example:
- Comparable property A sold for: $150,000
- Comparable property B sold for: $160,000
- Comparable property C sold for: $155,000
ARV = (Comparable A + Comparable B + Comparable C) / 3 = $155,000
In this case, you’d estimate the ARV of your property to be around $155,000, provided your property matches the comparables in terms of size, features, location, and condition after the repairs and improvements.
Remember, ARV is the value of the property after it has been completely renovated. It doesn’t include the purchase price or the cost of repairs – it’s the potential selling price of the property once it’s ready for the market.
CONSULT WITH PROFESSIONALS
If you’re new to this process or working with a property in an unfamiliar area, consider consulting with a real estate agent or appraiser who has local experience. They can provide valuable insights and help you refine your comps.
KEEP AN EYE ON THE MARKET
Real estate markets are dynamic. Stay updated with local trends and market conditions. Keep track of similar properties that are being sold, pending sales, or withdrawn from the market, as they can affect your ARV.
Running comps for the after repair value on a fix and flip property requires a careful analysis of the property itself, comparable sales, and the cost of repairs. By following these steps, you’ll be able to arrive at an accurate estimate that guides your investment decisions.
Always remember, the more precise your comps, the more likely you are to price the property appropriately, neither overestimating nor underestimating its value. Successful flipping requires a balance between the costs of acquisition and repair and the final selling price. Knowing the ARV helps you strike that balance and make informed decisions that contribute to the profitability of your fix and flip venture.
