let’s talk : FLIPPING – Scenario Analysis
Yesterday I got together with two of my investor clients to walk through a potential flip they make take on. Myself, the clients and their GC walked through the property to take a look and brainstorm the best plan of attack. I want to share with you some of the ways we are looking at this project.
So, as we do, let’s talk Real Estate, let’s talk FLIPPING SCENARIO ANALYSIS…
Before walking the property, I took a look at the comps to see what our potential ARV (After Repair Value) was. The thing about looking at your ARV, is that the ARV can really vary based on the work you put into the project. So here is how we are approaching it.
Currently this property is 840 sq ft, 2 beds, 1 bath.
We honed in on 4 comparables to come up with a renovation plan and budget. Each comp used, represented 1 of the 4 scenarios listed below.
(1) If we were to keep it a 2 bedroom, what is the minimum ARV?
(2) If we were to keep it a 2 bedroom, what does the max ARV look like?
(3) If we were to add a 3rd bedroom, what does the minimum ARV look like?
(4) If we were to add a 3rd bedroom, what does the maximum ARV look like?
I took these scenarios, found 4 comparable properties to match each one and sent them over to the general contractor so that he could put together a scope of work for each. He took each comp and laid out what we would need to do to the subject property in order to reach the targeted value for each of the 4 scenarios listed above. The point of all this was to see how much it would cost these clients to get to a specific after repair value. AND if that extra juice from that higher ARV was worth the additional squeeze required to hit it. The goal when renovating a property or even buying a rental is to not over-engineer it. What you put into the property needs to be appropriately proportional to what you get out of it so that you can make your money back and then some.
For all of the seasoned DIYers, Contractors or House Flippers on here – do you run multiple scenarios like this before purchasing a project? Share with us your best tips and tricks for scenario analysis.
p.s. Shout out to WayToGoHomes for today’s LTRE inspiration! Check out WayToGoHomes Facebook page for good flipping content!
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