If you find a home listed for $100,000 that needs a lot of work, but you see that identical homes in the neighborhood that need no work are selling for $175,000, then your ARV is $175,000 for the home. It doesn’t matter how much it takes to fix up the place, it’s just what you could sell if for should you fix it up. 

Determining the ARV on a flip or a non-performing note is the first step to determine if it is a deal that you would like to do or not. If your ARV is higher than your purchase price plus closing costs plus repair costs, then you might have a deal worth doing.

2004 saw the Gulf Coast get hammered with several hurricanes only to be followed in 2005 by Hurricane Wilma. These hurricanes coincided with the building boom which caused American drywall suppliers to run short on supply. In order to keep up with demand, suppliers started shipping in drywall from overseas, particularly China. Unfortunately, much of this drywall contained hazardous sulfuric compounds that would leach out of the drywall causing severe health problems for humans and pets and great damage to wiring, plumbing, and other metal items in homes. 

Concrete, being a porous substance, would absorb much of those compounds. Even after the defective drywall was stripped out of a property and replaced, the compounds would leach back out of the concrete if the property was not mitigated properly. In most jurisdictions, a seller must disclose to buyers that a home once had defective drywall, so even if a property has been remediated properly, resale could be impacted. That being said, many investors are able to acquire homes that once had defective drywall for less because of the stigma that goes along with such a property, but they would still have disclosure requirements to adhere to if they wanted to sell the property or, in many cases, if they were renting it. 

Be very wary and ask questions regarding homes built around 2006. You might just be walking into an unknown problem.

1. What You Do Know?: I’ve worked with general contractors that decided to start flipping houses and I’ve worked with people that don’t know the first thing about real estate. The key is to “know thyself.” What are your strengths? What are your weaknesses? Do you know construction? Do you have a background in finance? Do you have tons of cash at your disposal? Figure out what you know and don’t know and seek to fill in the blanks. 
2. What team do I assemble?: Did Nick Fury take on Thanos alone? No. He assembled the Avengers. In order to start a fix-n-flip business, you’ll need to assemble your own team of super heroes…your very own Real Estate Avengers. Instead of Thor, you’ll need a great contractor. A great real estate attorney will become your very own Tony Stark and a top-notch real estate agent that knows the market is your Black Widow. No one knows everything. No one can be everywhere at once. A huge key to building a successful business is to know when to delegate. Of all of your assets, your time is the most important asset you have. Know how to use assemble a team of super heroes and know how to use them. 
3. Where are You Financially? Are you the heir to a dot-com fortune or are you barely scraping by? Do you have an 800 credit score or do you have charge-offs all over your credit report. Understanding where you are financially will allow you to plan what to do next. You might need to find friends, family, or an angel investor to help you on your way. Diving in without having your financial house in order, however, can lead to tragic results. 
4. How will you finance your deals? Here’s a little secret. Banks hate providing loans to investors. Bankers are programmed to see real estate investors as a lower form of life. There are, however, several ways to leverage, or borrow money, for your real estate investments. Often times, however, those loans can eat up all of your potential profits. Understanding your “financial stack” is very important and should not be ignored. 
5. How should I structure my business?:  Should you buy your first property in your name, set up an LLC, or create a trust? Will you have partners or go it alone? What paperwork and filings will you need to do to be “legal”? Your business structure will impact your ability to get financing, taxation, banking, and many other issues. Choose wisely. 
6. How do I find deals?: Finding deals is easy. Finding good deals is another thing entirely. Even the most seasoned real estate investors struggle to fill their pipelines. As a new investor, you might be tempted to jump in and grab the first deal that crosses your computer screen. You need to be sure you understand what you are looking at. Finding trusted advisors to help you hunt down great deals will make or break your flipping business. You just have to know where to look. 
7. Who can be my Sherpa?: You wouldn’t climb a mountain without a seasoned guide that knows the terrain. Why would you undertake your first flip without having a shepherd to bounce questions off of? Someone that has been there, done that, and bought the tee shirt will keep you out of the poor house. Find a trusted Sherpa and listen to them. 

The answers to these questions will vary from investor to investor. They are also not the only questions you should ask when preparing to enter the world of real estate investment. Find a good, experienced advisor to bounce thoughts off of. You will certainly be glad you did.