Lesson,Learned,Determining,Rea business, insurance A Lesson Learned: Determining Real Estates Actual Value
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Making moneyinvesting in real estate really starts with determining theproperty's value. There typically is much confusion, especially fornew or budding real estate investors, on determining the actual valueof a property for resale. This is particularly true for single-familyhomes. The maximum amount, one could be expected to receive for anygiven property, is referred to as the ARV or After Repair Value. Asyou embark on your real estate investing career, you will find thatinaccurate property values could have multiple repercussions, none ofwhich are desirable for long term success. This is even more true ifyou want to wholesale properties. Over-valuing a property makes youlook inexperienced and eventually could lead to a loss of credibilitywith your buyers. Worse, your buyers could take advantage of yourinexperience and exploit it or even worse yet, you could undervalueyour deals so much you leave huge profits on the table. As anexample, my first wholesale deal was an older brick single-familyhouse in Columbia, SC. A hot lead came in from an extremely motivatedseller. They lived out of state, had been taken advantage of byseveral local contractors and decided to cut their losses. Thesellers wanted $10,000 for the house, and agreed to pay the backtaxes and closing costs also. Sure sounded like a great deal andfigured if I couldn't make this work, perhaps real estate investingwasn't for me. Immediately after getting the contract signed I calledan investor who did a lot of rehabs in the area. Now I had valued thehouse at $115,000 based on a few houses nearby that sold for $120,000each. They were a little bigger in square footage and I found theirsales prices on Zillow.com, so I felt pretty confident on my ARV. Myhouse needed a lot of work in the kitchen and outside, but was ingood shape for its age (old!). My asking price was $45,000 for thedeal and this investor immediately began negotiating the price down.Since another investor had already contacted me (there were quite afew after I placed some ads), we went to the house together. Thesecond investor asked how I had determined the home's value, and Ishowed him the other two houses on the same street. At that point,this investor informed me that those were new houses, built in anold style in keeping with the community. Whoops, it quickly becameapparent the more realistic ARV of my house was around $95,000.Fortunately, the deal I made on the property initially was so good itwas really going to be tough to lose money. I ended up selling thehouse to the second investor that looked at it for $27,000. Oddlyenough that investor resold this property for $33,000. I did howeverlearn a couple quick lessons. First, the source I used to determinethe property value was not very accurate. And second, I may havestill sold it too low. However, by selling it to the second investorquickly, I made a nice profit and only had the house for a very brieftime with virtually no overhead costs. In the secondpart of this article, we will look at more accurate and reliablemethods to determine the ARV or After Repair Value of ResidentialReal Estate. Learning this process will be the bread and butter, soto speak, to knowing when you get a good deal and more importantly itis the first step in determining what offer you will ultimatelysubmit for a property. Again, this is the first step. There are otherfactors you must consider before determining what that initial offerwill be. Article Tags: Actual Value, Real Estate, Second Investor
Lesson,Learned,Determining,Rea