Quote from @David D.:
These are two different but related strategies it sounds like. Steven is using an ARV model that's homegrown, and ChatGPT is using Redfin's ARV model, probably with its own intuitions about repair values baked in there too.
These are still different from my approach though, I think? I'm assuming Steven is also using a small dataset of Comps. I've been skeptical of Comps since first hearing about them. If there's only a few comps you're using, there's naturally going to be a lot of error in your valuation model, so you're at greater risk of buying a home that really isn't going to net you much of anything.
That's why I like this traditional ML approach, we leverage lots of data to inform our decision about which house is seriously "undervalued"
I have a couple of questions about both of your approaches though, will be interesting to compare them!
1. In Steven's approach, is the strategy to choose a house that has a high ARV but low current price, or to just select based on the ARV?
2. Have both of you found that these approaches are accurate in your own investments?
3. Do you think an approach with floorplans (which I just found out Redfin has), would be more effective?
4. I'm curious about whether you've tried to model the effects of remodeling alone. For instance, let's say I remodel the home completely, have a completely different look inside of it than it had prior, as opposed to the smallest possible remodel. There is presumably a sweet spot in between that has the best "value" on average. Have you explored this?
Floorplan is very important.
Also David have you try ever to use Privy or Pellego. Both software can guess-estimate the rehab cost from the pic. I check the inspection and picture, and create a range of estimates for rehab budget, for example 25k-50k or 50k-75k based on which house that needs to be remodelled. Then add 10-20k for additional unexpected budgeting.
For number 2. Yes. Every single time my prediction is deadly accurate. I even know when is best time to sell (Second week of February).
Most home, when needs to be fully remodelled, would cost me around 80k-100k. So for something that low comp is 800k and high comp is about 900k. You want to buy in the price of 600-680k. One way to make remodelling works is when you buy home that has a larger lot, then your creativity could kick in to create value.
Also if you do rehab in good market, you better rent it out for two years before selling so you can catch rent, reduce tax and make more money. If you can add additional room and/or kitchen the value of the home is higher.
Why I said this data is becoming too easy is because, if you chase in good market (DOM < 10/15), market is efficient so much so that the best house to buy is usually home with price reduction or having DOM double than the normal. If I visited only these house I can still find good deal.
