Best way to calculate ARV??

Question

Hey everybody! I'm an out of state investor, familiar with the podcasts but new to the BP forums.

I'll make this short and sweet - what is the best way to calculate an ARV? The ways I really look at are:

- local agents/contractors/appraisers

- comps

Are there any websites or BP links I can utilize for something like this?

Thank you in advance!

Scott E. · Answer

As others have said, you need to look at comparable homes that have sold in the immediate area within the past couple of months (comps).

You can use Zillow for this. Just update the filters to show SOLD and WITHIN 6 MONTHS and then look around the neighborhood that you are thinking about buying.

In a declining market like we're in, it's also important to pay attention to the PENDING properties and FOR SALE properties. You may have had a comp sell 2 months ago for $500k. But if that same model 3 doors down is on the market for sale for $450k and not selling, then that is an indicator that shouldn't be ignored.

Marc Maitre · Answer

It's not rocket science; every market has Zillow, redfin, and Trulia. If you don't have access to the MLS, Propstream, or Aquisitoins accelerators, you go on those free sites. Sent your criteria apple to apple, look for sold under a mile, preferably at .5, don't cross major High ways or subdivisions; look at what sold six months to a year. Get 3-4 high comps and average them out, and that's your ARV potentially. I don't spend too much time on it because, at the end of the day, as a wholesaler, the end buyer will run his numbers and find his ARV or the agent will do so. If you spend more than 30 minutes on ARV, you're taking too long. Figuring out your MAO is an entirely different game, though.

Alex Bekeza · Answer

@Ali Saad Find a real estate agent that is willing to run CMAs for you using their MLS access (Comparative Market Analysis).  Now more than ever you should be unrelentingly conservative with this.  Assuming that you're in a dense metro area I would not allow the CMA to include any sales outside of the last 3-6 months, not go outside 0.5-1 mile, not include any comps with more square footage or different bed/bath counts.  Take the average value of those comps and throw a 10%-20% haircut on it to be safe. Biggest mistake I see my BRRR clients do is bank all their expectations on the best case scenario.  Don't expect to get higher than 75% leverage on the take out financing.  You'll want to keep your purchase and rehab costs below 75% of that ARV. (Ideally closer to 65%-70% max although there's nothing wrong with leaving a little money in a BRRRR).

Jaron Walling · Answer

Comps, last 3-6 months SOLD properties, and <2 mile radius depending on location.

Add them up, divide by (x) number of properties, and see the result.

Or, work with an agent and have them do CMA.

Jeffrey K. · Answer

Hey Ali,

Determining ARV's is a bit of an art and will likely be an ongoing struggle :)

This is definitively the value that a good, investment oriented agent will add to your team. Unfortunately, I find that every agent will tell you they are good at determining ARV's but many are optimistic with their values. So always double check that the numbers make sense to you.

From a comps perspective, there are some general rules to follow. In addition to making sure your properties are similar in size, bed/bath count, age, etc. you will want to use properties within a 1 mile radius (and no more than 3 miles) of your property. A common mistake is comparing the total square footage of the properties instead of "Gross living area." GLA is the livable above ground square footage. This excludes items like garages, sunrooms, etc. Additionally, basements are not usually counted as GLA. Restated, a second story is worth more on an appraisal than a basement. Basements still have value, just not as much.

There are some online tools that project ARV, like privy, but algorithm's shouldn't be used as a substitute for your analysis and an agent with local market knowledge.

Hope this helps.

Ali Saad · Answer

@Nicholas L.

I will check these out, thank you for the response!

Ali Saad · Answer

@Eliott Elias

Do you mind sharing your favorite ways to look up comps? If I’m underwriting an out of state property, I assume there is a quicker way to find out the numbers than to contact a local agent and wait for their response. I’m looking for an on the spot solution.

Thanks in advance!

Eliott Elias · Answer

Comps, nothing more, nothing less. Depending on your state, they can be accessed with realtors or disclosed publicly.

Nicholas L. · Answer

@Ali Saad

Propstream

Zillow

Best way to calculate ARV??

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