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Wanna Flip? What is ARV or “After Repair Value”?

July 9, 2014

2014-04-07 22.17.12

“After repair value” (ARV) should not to be confused with “As-Is” Value.  These flip properties are properties that need repairs to be “returned to the fullest profitable use” for resell.  Real estate investors who are experienced know the difference between the “As-Is” value of a property, and the value we would expect a developed piece of real estate to  purchased for on the open market after it has been completely rehabbedThe open market value after the rehab work has been completed is known in real estate and investor circles as the ARV.

Some of the decision making factors for the investor are normally:

  • How long will it take to get the permits completed?
  • Will they want to do it themselves or hire a state certified contractor?
  • Do they have several bids available to ensure best cost from viable contractors who have years of proven experience to avoid any loss?
  • What will be the accurate estimate of rehab repairs needed plus cost (acquisition costs, holding costs, and soft costs) versus their budget?
  • Has a ARV appraisal been completed and reviewed to confirm the future profits prior to buying the property?
  • Are there sufficient comps available to support the ARV?
  • Do they have enough of their own funds or will they need additional financing and how much will that take from their profit?
  • How long will it take to complete the project and put it back on the market?

Financing for rehab properties is very limited.  Getting approved funding based off the ARV value has a price due to the risk of loss.  Typically you will see 10.95 -12.5% rate, 12 mth financing with a balloon payment, 6 months prepayment penalty and up to 8% in points/fees.  Typically these loans take about 7-10 business days to close.  It is best to have the financing confirmed prior to the purchase of the property.  A word of advice – the smaller the project, the less the risk will be especially for those newer flippers or investors.

It is best to shop around even for a hard money loan.  Don’t go with the first lender you spoke to.  Recently we helped a client who was offered 12% rate 40 year amortized, 6 points with $3500 in fees and we found a better loan at 8.99% 4 year fixed interest only, with only 4 points and $1495 fees. Every dollar counts when flipping.

We can also provide financing:

  • new construction
  • hard money/cash out
  • commercial
  • apartments
  • spec homes

Good video on how to determine ARV:

 

Another video using a spreadsheet demonstration: https://youtu.be/h_L6RpFxnq0

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