Price point for rehabbing single family

[George Knetzger]

hello. My confusion has to do with purchase price and after repair value eg  price is 100,000 and arv 125000

would that spread put the property in an unsellable position?  Should the purchase offer be discounted by that spread? 

[Leo R.]

@George Knetzger  the previous responses are correct.  

Additionally, any strategy that requires hitting an ARV to pencil is extremely risky right now, given the state of the market. The market today is completely different than the market 6 months ago, and the market 6 months from now will likely be completely different than the market today --so how can anyone accurately estimate the ARV when the comps that the ARV is based on are potentially irrelevant?

For instance, imagine you buy a property today for 100k and you assume (based on comps of recent sales) that the ARV will be 150k after a $25k rehab. You do the rehab over the next 6 months--during which time the market continues to adjust to the rate hikes. When the rehab is done, the property only appraises for 120k (because the market is a different universe than the market was when those comps sold). So, now you have $125k into a property that's only worth $120k (could be worse--some people are missing their ARVS by hundreds of thousands!).

Even highly experienced pros are having difficulty hitting their ARVs right now--and that problem will probably only get worse as the market continues to adjust to the rate hikes. Unfortunately, a lot of people are losing their shirts on ARV-dependent strategies at the moment. Personally, I would not recommend any ARV-dependent strategy right now, and that's 100x more true for beginners--and anyone attempting an ARV-dependent strategy should definitely be very conservative with their financial models, and have multiple alternate exit strategies available, in case they fail to hit their ARV. 

Fortunately, there are other, less risky REI strategies available.

Good luck out there!