By Kim Parmon, August 9, 2019
You’re looking at buying a house to flip. You find one that looks like a great deal. How can you be sure? Checking ARV is a key step. After Repair Value, or ARV, is a phrase that flippers throw around a lot. So what does it really mean?
Put in the simplest possible terms: ARV is someone’s best guess at what a house will be worth when it’s pretty again. “Pretty” is a pretty general term here. Maybe it doesn’t need to be beautified as much as it needs to be made more functional. Maybe there needs to be a bathroom added, or the tiny kitchen needs to be expanded. It could be that the head height on the staircase is the big issue here preventing the house from being worth it’s maximum value. Whatever it is, step one in investing is to formulate your plan to fix the property you’re looking at.
Once you have your plan in place it’s time to determine your ARV. Maybe you’re taking a dated two bed, one bath bungalow and expanding into the unfinished attic space. The attic will become a beautiful master suite. So when you look at comparable sales in the neighborhood you aren’t looking at two bed, one bath homes. You’re looking at beautifully updated three bed, two bath homes. What did those sell for? That’s your ARV.
I will say, there’s a bit of an art to this type of comping. It’s not nearly as straightforward as comparing a finished home to the surrounding sales in the current market. What happens if the market changes? What happens if the repairs done don’t match the comps? An ARV is really an educated guess about the possible value of a house.
There are a lot of intangibles to this! Check to make sure the streets are similar. Are the trees on your street as pretty? Is the view as good? Can a dog run around in the backyard or is it all hillside? Can you have a great dinner party in the dining room or does it only fit a four person table? Is the master closet going to fit all of those hats? Put yourself in the shoes of your buyer. Will they be as happy with your product as they would be with that comparable sale? If the answer is no you’ll want to reduce your ARV to compensate.
One of the biggest mistakes I see flippers make is assuming an ARV that’s too high. It’s great to have a positive outlook but protect yourself by investing wisely and making sure your ARV is right on the money!
Happy flipping!
Kim Parmon
Principal Broker | Earth Advantage Certified | OR
She/Her
Kim Parmon Principal Broker Lead Listing Agent Earth Advantage Certified | OR kim@livingroomre.com Oregon is the fifth state that Kim has called home in her life, and this one is sticking! After moving multiple times in her childhood, Kim fully understands how empowering homeownership and having roots is...
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