ARV questions about a BRRRR

[Gerardo Lewis]

Hey guys Im trying to pull off a BRRRR in my area and I'm curious to know exactly how can I estimate or determine the ARV? Is it by comps in my area? or Is it best by using the rent that it can command after the rehab?

[Andrew Postell]

@Gerardo Lewis sure, and this is important because some loan types will go off of "Comparable Value" as mentioned above (sold comps) but some will go off of the "Rental Income" value. Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.  These go off of "comparable value".

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.  Sometimes they will go off of comparable value but most of the time they want to see the rent from the property.

Anyway, hope this helps in some way.  Thanks!