one of the most important calculations for a house flipper is a properties after repair value or ARV being able to calculate a property's value once it's fixed up is crucial to your success as a flipper unfortunately too many flippers either do it wrong or they don't take the time to learn this valuable skill and they rely on real estate agents to do it for them I think that's a big mistake because no one cares about the success of your deal as much as you do the purpose of today's video is to teach you how to become a pro at running comps and calculating the ARV for free without needing a real estate agent get ready to learn the three rules to follow and doing ARV 5 tips and mistakes to avoid and the 4 step process for mastering the process of determining ARV on any deal coming up [Music] hi its cheering on the nation's leading expert on flipping houses even if that is self proclaimed as a house flipper once you've generated a motivated seller lead the next step is determine the maximum allowable offer or Mao in other words what is the highest price that you can pay to get the contract and make it a profitable deal well the nice thing about flipping real estate is there is a formula that will calculate your Mao this buy formula starts with determining the after repair value or ARV of the property the ARV is the projected value of the home on the open market once it's fixed up ARV is determined by looking at relevant comparable homes in the area the question to ask is what have homes in the area recently sold for that are similar in features now this can be arbitrary since no two homes are exactly the same but there are some guidelines to follow that will give us the most accurate ARV possible so let's review the three rules to follow five tips and mistakes to avoid and the four-step process for mastering ARV without using a real estate agent but first if we've never met i'm jerry norton and this channel is dedicated to helping you make more money right now in real estate not later in ten or twenty years or even three to five years but right now so that you can achieve true financial freedom and live your dream life consider subscribing to my channel and click the bell I kind of get notified when new videos are released rule number one when determining a RV is to only use comps that are similar in features when I say features I'm referring to things like the style of the home such as a ranch or a 2-story square footage size of the lot bedrooms and bathrooms garage or no garage for example let's look at this subject property here this is 827 square foot ranch with no garage that has two bedrooms and one bath well this comp is nearby but it's not similar in features it's more like twice the size it's 1728 square feet and is a two-story not a ranch and has four bedrooms and two and a half baths while the subject property only has two bedrooms and one bath now that was an extreme example but you get the point on the other hand this one would be a comp similar in features it's a ranch with similar sized bedrooms and baths etc now a simple way to make sure that you're using that are similar in features is to use filters to exclude comps that are not similar the most common filters are square footage and bedrooms I usually will use a filter that is within 500 square foot of the subject property now stay tuned and I'll show you how to do that online for free without needing a real estate agent here's the big takeaway from rule number one always choose the most relevant comps first if there are 10 comps the ones that are most similar in features to the subject property are the best and most accurate comps to use rule number two in calculating the ARV is to use recently sold comparables it's okay to look at current actives for sale to get an idea of competition and to see how many homes are on the market but actives don't tell us the true value of what the market will actually pay because they haven't sold yet sold comps give the actual hard facts about what the market will pay for a home always choose the most relevant comps first and the most recently sold comps are the best and most accurate comps to use for example a Compton sold yesterday is better than a comp that sold six months ago and the comp that sold six months ago is better than a comp that's sold a year ago when looking at comps on line add a filter for a date range start with 90 days to see if you can find enough relevant sold comps if not expand your search to 120 days and continue expanding until you find enough relevant comps rule number three is to choose comps that are close in proximity this is really important to where a lot of flippers screw up real estate values are location-specific ideally you want to use only cops that are in the same neighborhood think about a buyer they know the difference from neighborhood to neighborhood and values change from neighborhood to neighborhood just because you found a compa nearby doesn't mean it's relevant if it's in a different neighborhood remember always choose the most relevant comps first comps that are closest to the subject property are the best and most accurate comps to use for example a comp that sold next door is more accurate than a comp that sold a quarter of a mile away and a comp that sold a quarter of a mile away is more accurate than a comp that sold a half a mile away when looking at proximity start with three to five streets closest to your subject property and slowly expand out and you find enough supporting comps okay so now that you know the three rules to determining a RV let me share with you five tips to master a RV tip number one is to get at least 5 to 6 relevant comps that are similar and features close in proximity and recently sold if you can get more even better tip number 2 be completely objective or unbiased I'll say it again always choose the most relevant comps you can hand pick whatever comps you want to justify a higher ARV but you're only kidding yourself this is a common mistake with flippers don't force a higher ARV by ignoring more relevant comps because you want the deal to work tip number 3 is no comps are the same as bad comps a common question I get is I can't find any comps how do I determine the ARV the answer is you don't without similar comps that have recently sold nearby you're guessing on the ARV and flipping houses is not gambling tip number 4 is to exclude distressed comps the point of ARV is after repair value so use comps that are depictive of nice fixed up homes in other words a distressed house that's sold to a cash buyer is not a relevant comp for calculating ARV tip number 5 is to not speculate this is another dangerous mistake many flippers make speculating ARV is when you project a higher ARV based on future appreciation for example the current ARV based on relevant comps is 250,000 but the projected appreciation over the next six months is 25,000 higher so the speculative ARV is two hundred and seventy five thousand this is how a lot of investors get into trouble when the market corrects maybe it will appreciate maybe it won't so always calculate based on sold data not projected appreciation now let's quickly walk through the four-step process of calculating ARV step one is to use red fin if it's in your area because I think it's the best otherwise you can do the same with Zillow Trulia realtor.com and other public sites look up the address of the subject property then change the filters to look at sold homes choose five to six of the most relevant comps following the rules and tips that I previously explained let me take a minute and just show you how to do this and what I'm going to do is I'm going to scroll all the way down to the very bottom and it show here based on that zip code a little neighborhood here with a map now when we click on that what it does is it automatically outlines what it's calling that neighborhood now what I'm gonna do here is we're gonna go in here and click more filters I don't want to look at three bedrooms because a two bedroom two a three bedroom is a huge difference so you can see here if I put in the max amount of bedrooms too then it's not gonna show me anything more than two and look what it did it got rid of a bunch of those and it only gave me a couple click house port in here I'm gonna click sold and then I'm gonna put this right now I'm gonna start at three months and see what it does the other filter I could do is the square footage so right here I could put you know maximum a thousand because our subject property is eight hundred and some square feet houses two bedrooms that's enough filters for me to then take a look at what's going on so then I'm gonna zoom in a little bit and here we go I've got this cluster of comps right here and my house is right in here so you can see here I'm only a couple streets away to find some of these comps so now I would go through this is an 800 square foot 2 bedroom 2 bedroom I go through and I look through and I would decide what I feel like are relevant cops but you can see here I did this right on red fin step 2 is to convert all of your relevant comps to price per square foot this gives you an apples to apples comparison this is done by dividing the sold price by the square footage so for example if a consult for two hundred and eighty-five thousand that was a 1,800 square feet then the price per square foot is a hundred and fifty eight dollars a foot all you do is divide soul price by the square footage step three is to calculate the average price per square foot of your comps this is done by adding up all of the price per square foot comps then dividing by the number of cons that will give you your average so let's say that the average is 131 dollars a foot that means on average homes similar to your subject property are selling for a hundred and thirty one dollars a foot using the average is a safe figure to use you're not using the highest or the lowest step four is to multiply the average price per square foot by the square footage of the subject property to get your ARV for the subject property so for example if the average sold price per square foot of your six relevant comps is $183 a foot and the square footage of your subject property is 2,100 square feet then the ARV is 380 $4,300 now if you want to get really good at this check out my playlist where I do complete ARV analysis on real deals and I put a link in the description so you can watch that the tuning ARV is not something that can easily be done automatically because there's a human element to choosing the relevant comps and excluding they're irrelevant comps the key to successfully determine ARV is being able to organize and manage all of the information the best tool for doing this is my ideal analyzer software it tracks your properties and it saves all of the deals you're working on it has a custom calculator for running the numbers and it helps you be more accurate more organized and more streamlined to learn more about how to get this click the link in the description now if you learn something on this video show soon love hit that like button and be sure to subscribe to the channel I'm dedicated to helping you make more money and less time flipping houses so that you can live your dream life and remember it's not about the money it's about having the time and freedom to have me do and give everything you want in life that's what it's all about and I'll see you