Help with ARV

[Alia Abbasi]

Howdy BP!

I found a FSBO and am trying to figure out if it's a good investment. It's currently a big open space (house that was converted into a tortilla market). I am thinking of renovating it into a duplex, because of the size. There is only one other duplex in the area and everything else is SFR. How can I determine what the ARV will be?

[Darrell Shepherd]

Appraisers will use comps on duplexes unless there aren't any, then they'll turn to the other methods, but I'm with Jon, hard to comp properties are bad for your bottom line. I just bailed on a contract for the first time in my career because I couldn't get a solid handle on valuation on a house near the beach. You can make lots of money taking additional risk, but you can lose it too. If you wouldn't want to own the duplex when you're done if it doesn't sell, I wouldn't go there.

Investors look at return on investment, even on duplexes, at least around here. I used to buy primarily on multiplier of rent income. The a rest of the math fell into place if I did that right (in my area). Keep in mind, appraisals are just an OPINION of value. You need to deal with them when dealing with banks and small investors that use them, but I've had more than my fair share of appraisals come in way high or way low both buying and selling. I know plenty of seasoned investors that pay cash and never bother with appraisals, including me.

Saying that, your risk goes up a LOT when you dont have a solid valuation and if you are new and you would be strapped if you had to keep it, I wouldn't recommend doing a duplex. If it'd cash flow like crazy when you're done, then it's probably still a good exit.

So much of this advice depends on where you are, though. If you are in a high density, high demand area then getting two units out of one would make sense, I can think of plenty of areas in Atlanta I'd put the only duplex in the area in a heartbeat if I could. If you are out in farm country where land is cheap and duplexes rent for $300 a side it'd be pretty silly.

Hope this ramble helps some...its very important to remember when getting advice on here how much where you are investing matters. It is NOT the same game in Atlanta as New York City as Wyoming. I'm primarily in two markets, Atlanta and St. Louis and my strategy is completely different in each.