I specialize in hard money loans for California properties. Many of my transactions these days are of the fix and flip variety. These transactions are typically short term, where a real estate investor purchases a distressed property in need of rehab work for a below market price, does the work and then sells the property once completed for a profit. I work with many successful investors, but also have seen failed projects along the way.
One of the main reasons for a failed project is that proper market research was not done by the real estate investor upfront. When purchasing these types of properties, it is very important to know your numbers. Perhaps the most important number one needs to know is the after repair value, or ARV. This is the number that the property should sell at once completed, and this number is the basis for everything else, including the price you can pay, the amount you can spend on rehab, how long you can hold the property and the profit potential available in the deal.
When this ARV number is too aggressive or optimistic, there is a good chance that the investor is not going to make money on the deal. While they may not lose money either, the time spent learning this crucial lesson is time that could have been spent on a profitable deal.
For a more detailed look at how to properly do your research and come up with a real ARV with which to work, check out my blog post on how to determine ARV for house flipping. For new investors, this is must read information. Regardless of how good the professionals are that you choose to work with, you must be able to do your own research and come up with your own conclusions that are accurate. Your business success depends on it!
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