When figuring out the ARV of your rehabs, there’s a little more to it than applying the highest price per foot (PPF) comp. As I mentioned in another post, there are some unscrupulous wholesaling companies that trick a lot of first-time investors by using that method. There are several other considerations:

  1. What’s the most important thing in real estate? LOCATION. If your property has a less favorable location than the highest comp, you’ve gotta figure out what the discount is. For a really bad location it may be 20% or more. (And expect a longer sales time)
  2. Average square footage of comparable sales is another big factor. Appraisers talk about conformity, and your property must come close to conforming to the neighborhood norms. A general rule is that smaller square footage properties tend to bring a higher PPF (trending UP towards the median prices) while larger-than-average properties will bring a smaller PPF (trending DOWN towards the median prices). I usually tell folks that +/- 200 sq ft of the average you are safe with the simple math.
  3. This is another one that falls under conformity. If all the properties have a garage, and yours doesn’t….. you gotta discount. If all the homes are 4 bedroom while yours is a 3, you gotta discount! Any feature found in the “average” home in your area that yours is lacking must be accounted for! Conversely, you cannot always give credit for extra or unusual features. The best example of this is a swimming pool. I have people tell me all the time that they spent $20,000 on their new pool, so their house should be worth an extra $20K. Pools are a funny thing, and should probably be covered in another post….. but the short answer is that many people see them as a liability (financially and legally) and do NOT want one. The only instance that you would give a pool any real value is if the average house has a pool. This applies to other things such as hot tubs, really high-end appliances, extravangant mouldings, etc
  4. Aesthetics. Here in Houston a majority of the homes were built during the post-war 1950’s boom. While most of these one-story ranch style homes are attractive, this is also the era that produced what is now called the “Mid-Century Modern”. Also called “contemporary” homes, these elevations featured flat or low-pitched roofs, unusual stonework, globular light fixtures, and all the cutting-edge technology of the day! IN GENERAL, these houses are not as desirable as the ranches, and typically do not bring top dollar. There is a contingent of Mid-Cen fans out there, and lots of them restore these homes to their original George Jetson-like 1950’s ‘charm’. One neighborhood where these houses are common is Glenbrook Valley. Click here to visit the neighborhood website to get a taste of this era of home.

There are exceptions to any rule, and it only takes one buyer that falls in love with the house to make your deal great! The question is, when figuring out what you can pay for a house…. do you want to gamble on that one buyer coming along?

I hope these few tips will help you avoid some of the pitfalls in estimating your ARV or in pricing your investment properties!