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Getting the Right ARV for Up-and-Coming Neighborhoods

Hipster staging in West Philly rehab
Hipster staging in West Philly rehab

Wealth. Legacy. Lifestyle.

 

Action Inspiration

Someone’s sitting in the shade today because someone planted a tree a long time ago. Warren Buffett

Getting the Right ARV for Up-and-Coming Neighborhoods

Many are chasing flip and profit dreams in areas that are more “coming” than “up.” While it is true that you make your money on the buy, you also lose money by miscalculating the After Repair Value (ARV) that a new homeowner would be willing and able to pay.

Here are some common mistakes…

  1. Expecting the market to reward you for over-improvements. As your rehab budget stretches, you may want the ARV to expand at the same rate. The reality is that the forces outside of the property can be just as significant on the value as your rehab work. Poorly maintained homes on the same block will have a negative impact on the valuation of your property. Striving to have the best house on the block is risky. Ration your choices on materials and finishes by the neighborhood.
  2. Choosing bad comps. The better you understand your target neighborhood, the more you will get the block by block nuances. Misunderstanding a block could cost you $50-100k in some areas. If the number of settled transactions have been slim over the last six months, you should look at the pending, expired, and withdrawn MLS listings to give you an idea of how prospective homeowners value the area. Don’t base your profit on overly rosy comps. Note: this applies to rentals as well. Don’t gloss over the condition of the homes on the same block and the size of the rental units. For instance, you should not base your projected revenue on a proposed three bedroom house rental on the expected rent for a two-bedroom apartment. Both types of rentals target different households.
  3. Being off in your “hipster” forecast. “Follow the hipsters” has been safe money for investors for years. When I see a lot of overtly hipster furniture staging, like in the photo for this post, the target audience is clear. But will the vintage table alone make them buy if the block screams “not yet” on the exterior? The more established the hipster community, including new coffee shops and restaurants, the more premium you can comfortably expect. Err on the side of conservatism on the timeline for true neighborhood transformation, even if that means holding as a rental for a period.

July Key Market Statistics

(Statistics shown are for rolling 12 months ending in July)

(19143) West Philadelphia-Cobbs Creek/Cedar Park

 July 17 July 18% CHG
Total Sales44453220%
Lowest Sales $11K$14K24%
Highest Sales $1,545K $800K-48%
Average Sales $141K$154K9%
Days On Market 4637-20%

(19104) West Philadelphia-University City/Mantua

 July 17July 18 % Chg
Total Sales 15518117%
Lowest Sales $13K$14K8%
Highest Sales $2,400K$1,250K -48%
Average Sales $255K$253K-1%
Days On Market 4538-16%

(19139) West Philadelphia-Walnut Hill/Haddington/Mill Creek

 July 17 July 18% Chg
Total Sales 23227318%
Lowest Sales $5K$8K50%
Highest Sales $607K$585K-4%
Average Sales $89K
$109K22%
Days On Market 6041 -32%

Upper Darby

 July 17 July 18% Chg
Total Sales 1,0381,0925%
Lowest Sales $14K$21K50%
Highest Sales   $415K$435K5%
Average Sales $127K$139K9%
Days On Market 7156-21%

Chester

 July 17 July 18% Chg
Total Sales 2002105%
Lowest Sales $5K $5K0%
Highest Sales   $165K$255K55%
Average Sales $53K$57K7%
Days On Market 57 56-2%