Helpful Hint # 2

The After Rehabilitating Value (ARV) is something each investor needs to calculate before purchasing any property. This calculation is important because when you use it with the 1 percent hint you know what you’ll be renting the property for. However, this calculation should also help you in determining what the maximum is that you could purchase the property for. Every investor must determine their own percentage, but rehabbing a property increases the value and the high the value of a property the higher the rent. I know of a large investor who uses a 75 percent ARV.

Although this may appear to have been pulled from nowhere to many beginning investors, this percentage has been chosen in reality by the lending institutions. The ROI method is about getting to roll your capital in to as many deals as possible. The higher the ARV may appear as a likely goal, but it remains to be able to continually roll over your capital. This method is for investor who desire to hold onto their projects and rent them, not for flipping. The reasoning behind using a 75% ARV hint is simply because most lending institutions are will to lend at a 75% loan to value. Since we purchased at the 75% of total value when the lending institution approves us for a 75% loan to value rate, we have recovered all of our capital and still have the property to hold and use.

The ultimate goal of the ROI method is to get your capital working hard for you, not to make you work hard for it. Each time you’re able to recover your capital you then reinvest into another property. Each time you reinvest it will begin to grow momentum. Speed and accuracy will be gained by becoming a more experience investor.  Others will realize the type of properties you search for, and they will begin searching for you. Service provider will not just lower their prices but a wise investor will negotiate lower prices because of the volume of projects they can give to the service provider. Still, in beginning, you will find this is not an easy standard to meet. It will cause you to look long and hard. You will crunch the numbers on several project before it is time to pull the trigger. Which is a good thing, because it forces us to step up and improve our investing strategy in all areas. This makes us a better investor, which should be the end goal of every ROI investor.

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity, color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status.) He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.