subject: Real Estate Investment - Tips To Be Successful [print this page] The most important thing about real estate investment is buying a good property and there are some terminologies to know in dealing with real estate.
After Repair Value or ARV is the worth of a property after it has been
rehabbed.
Highest Best Use or HBU is a term that is used for commercial properties and it means whats the highest to best use of a property. In case of residential roperties, by HBU one can decide what would be the highest to best use of money after valuating the property. In selling a house it is important to realize a few things that may be missing in the property like a drive way. If other houses in the neighborhood have drive ways, then it may become necessary to build a drive way. In order to have an edge over others, it might be necessary to do something extra like modernizing the kitchen or doing something in the bathrooms. Granite countertops or nice cabinets can be put in the kitchen or the bathrooms can be redone. The active and sold homes in the neighborhood can be seen to get an idea what are the basic features in these homes. This may fetch competitive prices and so it is always advisable to have something extra.
AARV is the value of a property after subtracting the cost of repairs from the price of a property, after it has been rehabbed. For example if the cost of a
property after repairs is $150,000 and the repair cost was $ 20,000, then AARV will be $ 130,000. In such cases, the important question that arises is the loan amount. If the AARV is $130,000 and the ther fferent costs like real estate agent fees, title fees and closing fees costs another 10%, then you will have interest fees for hard money loans and other flush funds which could be another 10%. Finally, you can have a 10% profit margin for ourself. Thus you are getting $91,000 after you deduct the above 30% from the AARV value, i.e. $130,000. This is the amount you are going to get from hard money lenders if you are looking to invest in a single house in a typical neighborhood. But if there are private money lenders who are going to lend more than 70% of AARV, then there would be no profit for both of you. So it is important to
make a decision about the worth of a property after it has been repaired and it will be the highest to best value of that particular property.
If you are spending a lot of money on the property without doing the calculations, then making money on that property ight be difficult. You should look at the lowest sold and active comparables within the particular neighborhood to make sure that your calculations are right and then only can you make a decision. If you look only at the highest comparables, then you are going to make a mistake because if someone has made a profit of $50,000 on their property, doesn't mean that you will lso ake the same amount of money in your deal. So you need to see the reports of individual evaluators from similar neighborhoods to evaluate the property and make a bid.
