There are many things that a flip- per can do to enhance an asset’s value. These are also important items for a hard money lender to understand. Some flippers add a basement or add a bath- room to increase the ARV. In conclu- sion, ARV is the key to the hard money business. If you do your numbers correctly, this will eliminated 90 percent of the risk associated with the loan. •
2 Age of the property Compare properties that were built within 10 years of one another. This is important for townhouse communities that have a number of different builders in a particular subdivision. You want to get similar models and ages. 3 Lot/Property Square Footage This is very, very important. Especial- ly within a city, where square footage is a major price driver – it is vital. You must compare properties with similar square footage or determine the price per square foot and make adjustments. 4 Ownership types Understand Fee Simple vs. a Condo ownership. There are many townhouse communities that are condo-owned but townhouse-built. 5 Number of Levels Stay consistent.
6 Closed Comp Timeframe The safest approach is to go back 90 days when identifying closed comps. If 90 days is too short a timeframe, I will go out 120 days, and then 150 days to find a good comp. Anything over 6 months does not give you a good determination of how properties are moving in the area. 7 Active/Under-Contract Comps This is a very important criteria because it tells the investor what the competition is in the market. If I see a market with a ton of Actives and not many Under-Contracts then I will evalu- ate that asset much more conservatively. Conversely, if there are very few Actives and many Under-Contracts, then I know an area is on the cusp of appreciating. 8 Asset Type Make sure the asset type is the same. For example, if the subject is a duplex, compare it to a duplex.
Charlie Einsmann is the co-founder of Clear Sky Financial, LLC, a hard money lender in Washington, D.C., Maryland and Virginia. He is also
the co-founder of Clear Sky Properties, LLC, a jointly owned holding company for residen- tial properties that are acquired, resold or re- tained in a portfolio. CSP has done over 400 renovation/flip properties. He jointly owns Green Dot Title, a successful title company. He welcomes questions and inquiries from real estate investor-readers. 703-887-1039
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