how to gague how much a house is worth after rehabing

[Samuel Chua]

Good evening, I am a new investor who was looking through some houses to practise my cash flow calculations. However, it soon dawned upon me that I did not know how much a house would appreciate after rehab and how I can gauge the rent/price after rehab. Do I have to hire a 3rd party or do I use the trail and error method? Advice would be appreciated. Thanks!

[Andrew Gingerich]

Sounds like you are trying to find the ARV or after repair value. For single family homes you need to compare it to other homes in the neighborhood or 'comps'. While your rehabs will improve the value of the home they will not make your newly improved home much higher than other comps in the neighborhood, even though the other comps might not be as updated. The comps will hold back the value of a completely remodeled home. If there are homes down the street that have similar square ft, lot size, bedrooms and bath numbers that sold within the last six months... you can bet these homes are going to drive your price. three houses in the neighborhood sold for 200K? Great you can bet your newly fixed home won't sell for over 220K and if it were me, I'd assume I can't sell my newly fixed home for more than 200K.

Knowing this number is critical before buying a fixer, estimating rehabs etc. (You already know this), since you want to make sure you're not going to lose money by the time you factor in your rehab, purchase and holding costs (taxes, electricity, etc). 

Sites like Zillow etc are good free sources for ball parking home value. But the best way to do this is to use your county assessor to determine what the comps in your neighborhood sold for over last three to six months. Of course if you have access to the MLS or a realtor friend they can give you data on comps.