What kind of numbers do I need?

[detroitinvest]

I'm a real estate agent in the metro Detroit area. I'm looking into investing and there is a large amount of REO's on the market.

What kind of numbers make sense for the hard money lenders? from what I can tell it's 65% of the total ARV,

 who does the appraisal for the ARV? does it have to be an official appraisal from a licensed appraiser?

ARV is something i only see investors talk about, i don't hear RE agents talk about ARV, with a shifting RE market ARV can be speculative. How can an investor be sure his property will sell at the ARV he determined it was going to be worth after rehab. Properties can take a 10% drop in value as soon as next year, especially if more homes go into default.

thank you!
john

[DannyTheGreat]

Determining ARV in a hot market always leaves the investor with a pleasant surprise come the time of sale. There is always some extra icing on the cake. In a declining market, you've got to be smart with your ARV or lose money. Infact, a better term instead of ARV may be, When It Sells Value (WISV). I just coined that term so if you hear anyone else using it, I'll be suing them when my trademark comes through.

To determine the WISV, you take the ARV minus depreciation. In declining markets, obviously prices are dropping but properties tend to sit for a while to which is salt in the wound. You need to figure out how many days on the market it will sit based on comps. If you think the market will get worse, add an appropriate amount of days to that. Then you need to track how much prices have been dropping based on comps. Instead of using the typical 3-6 comps from 6 months back, I'd use more like 15-20 from a year back and try to graph the depreciation. I elaborated more about this current problem in a recent post, although I'd never be able to find it.

Just remember that it's always safe to overestimate. You'll need to find bigger discounts than ever so that your bottom line doesn't have a negative sign in front.

[detroitinvest]

When a property or properties have been sitting for a long time (buyers market) the sale price can be at quite a discount depending on how motivated the seller is or how much debt is on the house.

I'm seeing homes advertised for sale/lease due to the high inventory and long DOM (days on market)

I'm seeing 300-500K homes (which are expensive homes here) being offered for aboout 2,000 month lease and taken off the market due to High inventory, DOM, and no buyers. Sellers taxes can range from 5,000 and up in this area,5,000 being on the low side, so owners are not makeing a bundle on rent, just haveing someone in the house and not sitting vacant, and the owners can at least pay their bills on the home.

I'm not looking at anything in that range for investment though, I'm looking at forclosed, under 100,000, something to generate cash flow

[DannyTheGreat]

Are you interested in rehabbing, renting or both combined?

[detroitinvest]

I'm interested in doing both

[detroitinvest]

Many forclosed properties in my area, so after rehab offering a lease option/ rent to own, is preferable at this time, yet also interested in good longterm rentals

[DannyTheGreat]

Well in that case, a plain ARV would be the only thing required. That is unless it takes more than a couple months to get a tenant- buyer in.

who does the appraisal for the ARV? does it have to be an official appraisal from a licensed appraiser?

Sorry for overlooking your first question... usually a HML would order a third party appraiser at your expense to determine the ARV. If this is not a total gut and you plan on salvaging as much as you can, you'll probably want a home inspector to come in to tell you what can stay and what can't. From this inspection report you can determine a scope of work to be done, which the appraiser will need to determine an ARV.

Sidenote- Good, long-term, single family renters in an under $100k property sounds like an oxymoron.

Good luck to you.

[detroitinvest]

Sidenote- Good, long-term, single family renters in an under $100k property sounds like an oxymoron.

Why do you say this Danny? you can get the same rent or close to it for a under 100,000 property in my area as you can for a 150,000 - 300,000 property. honest, beleive it or not.

I can fax you the classifieds and you can see for yourself. That's why the 150,000-300,000 multi families are movin slow, plus the hefty property taxes at the like of 5,000. an investor is going to have a difficult time payng 170,000 for a 2 family flat, rent it for 700 a unit, pay 5,000 a yr taxes, plus water and maybe even heat.

an investor can buy a 3bd bungalo REO, winterized and in nice shape. Maybe not even have to paint or carpet the property, rent for 700-800 month, taxes 2-3,000, they get us on taxes either way.

[detroitinvest]

Every market is different, it's very difficult to rent anything for 900 and up, in my area (very high inventory of rentals). People can buy a home if they are going to pay that much in rent. It's a great time to be a renter or a buyer here, such a large volume of properties, landlords are takeing a hit w/vacancies.

[1fatjoe]

if you compile a list of first time homebuyers and then go out and get properties youd already have them approved and youd be ready for a flip. all of the homes in default will make it easier for you to get a good deal to flip.

typically hard money lenders do 65% but there are 2 companies that do 80% and they are located in michigan.

the hard money lender orders the appraisal most of the time but some will tell you to go and get one and send it in to them.