Excelling At Determining the After Repair Value (ARV)
Becoming an expert at analyzing comps (determining ARV) is the key to being a successful fix and flip investor. Whenever I break into a new area that I want to do deals in, I need to first understand the city or town (local market). To learn the overall market in any particular area, follow these steps:
- Step 1: Look at the recent retail sold comps. Print off a list of retail sold comps from the past 30 days for the whole area.
- Step 2: Map out and drive-by each comp. As you physically drive the comps, ask, “Why did this house sell for this price?” Look at the street, the neighborhood and the area. This exercise usually takes an entire day of driving comps but in that one day, you will learn the local market. You’ll learn the most desirable areas of town, which neighborhoods are better, where the cheaper end of town is, etc. You will also learn the value of features for that given area. For even more impact, schedule showings to view some of the active and pending listings. If you can get inside, that will really help you understand the market even better.
- Step 3: Once you’ve learned the overall area, set up searches specifically for that area on the MLS and start farming for deals.
- Step 4: As you find potential deals, you will instantly know the area (from your one-day driving exercise). You will be able to see in your mind’s eye what that particular area is like. Now you can look at comps, fill out the Instant Deal Analyzer tool and determine the ARV with confidence.
Example: Once, while doing this exercise, I came across a particular retail sold comp that was really throwing me off. It was much lower than all the other comps I was looking at. I’m in my car at the street looking at this house, asking myself, “Why did this house sell for so much less?” It was a beautiful retail home and I couldn’t understand it. All of a sudden I realized that it didn’t have a garage (in a market that predominately had garages)! Now it made sense to me. Always seek to understand why a comp sold for the price that it did.
Final Word on Determining ARV: Never, ever rely on others to determine the ARV for you. I believe very strongly in creating a system and outsourcing aspects of the business to leverage time. You want to free myself from the business as much as possible. However, this is one area that you want to control. You want to make sure that every deal you do, you’ve personally analyzed the ARV to make sure that the numbers are right.