I have a question. Say a flipper needs a loan.
I have a question. Say a flipper needs a loan. He / She has found a property for a purchase price of 100K and in need of 30K in repairs with an ARV of 170K. Using a LTV of 70% on the ARV; the loan amount would be 119K. What is the best way to assess that those 30K in repairs would take the ARV to 170K? An appraiser? Thanks!
Thanks for your question! An appraisal from a licensed real estate appraiser would give you the most accurate ARV, but you can get a general idea by researching comparable homes that have sold in the region or have your real estate broker do a comparative market analysis (CMA) for you. When I want to determine market value, I typically try to get 3 CMAs from 3 different brokers at different firms to compare and see if they align.
I’d also be conservative on the valuation in the event the market dips. For example, if the appraisal comes in at $170k, I’d see if I could still profit at 10% less than that in case I land in a situation where I need to reduce the selling price. You will also have carrying costs while you renovate, such as utilities, taxes, insurance, mortgage interest and principal, and any other expenses that come with the property before you flip it, so these need to be calculated into your overall expenses and deducted from potential profits.
Here are some of our house flipping articles that should help!
How Much Does it Cost to Flip a House: https://fitsmallbusiness.com/cost-to-flip-a-house/
Here is a list of all our house flipping articles: https://fitsmallbusiness.com/investing-in-real-estate/flipping-houses/