Lowest ARV you will mess with?

Question

Another newbie question...

What is the minimum ARV for a SFH that makes it worth while?  I have been looking at very low end housing...the 70% rule applies...yet after realtors fees/holding costs/closing cost it just doesnt make sense! It seems like I will be one "discovery" away from losing my tail.  This could all be an issue due to me "padding" every number possible because this is my first deal.  Thanks in advance to all that reply!

Account Closed · Answer

I don't have a percentage. I like to get about $100k in instant equity at close of escrow and not have to do more than $15,000 in repairs and upgrades.

$ amount is going to vary greatly depending upon what average home prices are in your area.

Frank Adams · Answer

I really should have put in more detail. Yes I buy for cash, I've done enough flips that I don't miss any major expense and my sales strategy means very short hold times.

On the above my hold times were;
TWO WEEKS, including doing the roof
SIX WEEKS, roof and siding
ZERO DAYS, two closings on one day

I make another $300 or so on document preparation charges and I'm making about ELEVEN 1/2 PERCENT on my money

Richard Warren · Answer

I think you are missing something here.  Frank buys for cash.  When financing costs are removed from the equation so is a lot of your risk.  The 70% ARV guideline assumes that you are financing the deal.  So a couple of those transactions may look risky, they really aren't.

:cool:

Frank Adams · Answer

Generally $60K ARV is my bottom. But I know I'm going to sell for higher than "true" market rate, I'm buying for cash and converting my cash into a "mortgage backed security". 
Looking back at the last 3 flips I did;

Paid $50K, put in $2,K, sold for $70K
Paid $22K, put in $14K, sold for $56K.
Paid $50K, put in ZERO, sold for $65K

Brian Haskins · Answer

The arv you should be looking for isn't anything we can give you, it's gong to depend on what your buyers will pay. Also that is just a basic example. if your in lower end houses you may have to really change that number.

Brian Haskins

E. Jacobs · Answer

I think you need to also look at the situation. For example, going in at 71% ARV as Frank did in his first deal may not be so risky if you know you only have minor repairs and will be able to find a buyer quickly. This will allow you to immediately start marketing the property and you should be able to minimize holding costs. But you are right, one discovery could really start to cut your profits thin. You should analyze the house and if you are confident enough with what your due diligence tells you, then maybe it isn't so bad to go into a slightly riskier situation if you know what you're doing and are expecting a good return. Personally, I would move on to the next deal since there are so many out there, especially since I'm just starting off. If I had some years experience under my belt though, I might be a little looser with my criteria (although still conservative) if it helped me increase my volume by enough. I guess everyone has their own level of risk aversion and you also have to take into account how confident you are in yourself to get the deal done. Especially if you already have the end buyer lined up.

Michael P. · Answer

I do not have a bottom number although I can tell the number has ended up being 80k.

I don't mess with the ghetto houses, although I am certain people are making some money off of them in the horrible parts of Dallas.  I am sure your area has these as well.

If you can't make the numbers work then they don't work.  Don't try to come up with some magic formula that doesn't exist.  Stick with your formula and move up in prices if you need to.

Also Frank is in a different arena of investing then what you are probably looking into.  His figures don't need to make as much sense given his exit strategy.  He is selling the houses with owner financing.

Goodluck

Kevin L. · Answer

By no means am I knocking what you are doing(you are making money and I am not)...but I would have been scared of 2 of the 3 deals as they do not fit the "70%" rule.

Lowest ARV you will mess with?

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