How to Make a Million Dollars a Year Flipping Houses by Jerry Norton

Author:Jerry Norton
Language: eng
Format: epub
Tags: Business & Personal Finance
ISBN: 9781456623470
Published: 2014-11-30T16:00:00+00:00

Chapter 8:

Excelling at After-Repair Value (ARV)

This is a very important aspect of the fix and flip strategy. I am going to explain how to master the process of determining ARV. But first, I want to emphasis the importance of understanding the value of features.

Value of Features: In order to comprehend the value of a home, you need to understand the value of features in relation to the market you’re investing in. The value of features differs from market to market. Let’s look at several of the most common features.

Foundation: Most markets will predominately have basement, crawl or slab foundations. For those wondering what a crawl is, it's a short basement wall, usually 2–4 feet high with only enough space to “crawl” under it. So how do you understand the value of basement, crawl, or slab foundations? You must look specifically at the inventory on the market.

Example: Let’s say you’re looking at a subject property and it’s a slab foundation and 90% of the homes in the neighborhood have basement foundations. Is the subject property going to be devalued due to it being a slab foundation? The answer is yes, because the majority of homes in the neighborhood are basement foundations. Now, what if 90% of the homes in the neighborhood are on slab foundations? Is the subject property going to be devalued? The answer is no because slab foundations are the norm in that neighborhood or market.

Finished Basements: What is the value of a finished basement compared to an unfinished basement? The answer is that it depends on the market. If you’re looking at a deal in a market where 90% of the homes in the neighborhood have finished basements, you better plan on finishing the basement as part of your rehab plan because the market will place more value on finished basements. In that scenario, an unfinished basement is going to be very undesirable because the majority of the people buying there are going to want finished basements.

Example: In one of the markets where I do a lot of deals, unfinished basements are common. In fact, a finished basement only has a dollar-for-dollar return. In other words, if it costs $7,500 to finish the basement, I will only get $7,500 increase in sale price. So instead, I paint the walls and floor and make the basement clean and presentable but unfinished. On the other hand, in a different market where I do a lot of deals, a finished basement has twice the return. So, if it costs $10,000 to finish the basement, I will gain $20,000 in increased value.

Garage: The value of the garage depends on the market. Does the market demand a 1-car, 2-car or 3-car garage? Detached or attached? In some markets there are hardly any garages and carports are most common. Again, it depends on the market.

Example: One of the markets I invest in has mostly 1- and 2-car detached garages. In that particular market, the value is not much different between the 1- and 2-car garages.

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