How to Calculate ARV Accurately and Avoid Costly Real Estate Investing Mistakes

Jack Lavoie (00:00)

Yeah, you know, you can have all these techniques, you know, you can learn about land trusts and you can learn about, you know, all these techniques, you know, subject to fix and flip. But if you don’t, if you don’t have a basic understanding of what the property value is, not so much now, but you know, you after repaired value, I always say if you miss that, okay, if you’re off by that, all of all your other numbers are are wrong.

 

And then you know you go and you you overstate by by 10% of a property and you fix it up and it doesn’t sell and and it’s a declining market.

 

Scott Bursey (02:07)

Welcome back to the *Real Estate Pros* podcast, powered by Investor Fuel. I’m your host, Scott Bursey. And today we have a true pro in the house. Jack Lavoie from My Florida Appraisers is joining us. If you’re investing in Florida, you know that the market is moving fast, and guessing isn’t a strategy. Jack brings that fuel, the cold hard valuation data that separates the investors who scale from the ones who get sidelined. He’s a state certified appraiser.

 

An evaluation expert who spends his days advising the biggest lenders in the game. Jack, welcome to the show.

 

Jack Lavoie (02:44)

Thank you very much, Scott. I appreciate that very generous introduction and look forward to talking to to you for a little bit here. So thank you.

 

Scott Bursey (02:51)

Absolutely. It’s our pleasure to have you here. And Jack, to get our listeners up to speed, please give us the front row seat and where your career ignited and where you’re pouring your fuel now.

 

Jack Lavoie (03:02)

Sure. Well, I was born and raised in New Hampshire. Okay. And that’s how they pronounce it up there, New Hampshire. And basically been in real estate and specifically in appraisal for most of my adult life. Also have done some investing too, which and continue to do so. In 2019, got sick of shoveling snow, actually got got sick of it a long time prior to that, but we moved down full time to to Florida.

 

And I’ve been appraising down here full time since 2019. My business is myfloridappraiser.com. That is actually the name of the business, a trade name. And we do primarily cover southwest Florida, anywhere from you know situated in Fort Myers, but we do, you know, two or three main counties, but for any specialty work like FEMA 50 rules, appraisals,

 

people needing permits for that we’ll go, you know, we’ll travel quite a ways way throughout the state of Florida. So that’s but yeah.

 

Scott Bursey (04:01)

Awesome. You haven’t had to shovel any snow recently, that’s for certain.

 

Jack Lavoie (04:06)

When I do it’s it’s on a rental car and I and I know that I’m catching a flight the next day or two, it doesn’t hurt as bad. So

 

Scott Bursey (04:13)

Absolutely. And you know what stood out to me about you, Jack, was the way you’ve been able to bridge the gap between institutional grade financial requirements and the boots on the ground reality for Florida investors. You aren’t just filling out forms, you’re providing clarity that actually gets deals funded.

 

Jack Lavoie (05:21)

Yeah, we do, you know, we do a lot of we do a lot of traditional lender work, right? And and we love our lenders, love the mortgage companies, but we do a lot of a lot of non-traditional lending, both private, you know, in the legal in the legal aspect, you know, states, you know, state planning, date of death, divorce, also you know, a lot of DSCR loans, you know, private investors, hard money lenders that are putting their money down.

 

They want to loan the money, but they also want to make sure that the investor is looking at it through not a rose-colored glasses and everything. So we do a lot with that. The other thing is that Florida is very complex. Okay. It wasn’t so complex years ago, but we have rising insurance costs, we have condominium laws. And I tell you, anytime you buy a fix and flip or a property that you think you’re gonna renovate and it’s in a flood zone.

 

You have to be you have to worry about what they call the FEMA 50 rule. And that can surprise and throw off investors and purchasers. And you know, we we provide guidance and and appraisals that are that are to the you know FEMA guidelines and county guidelines. So it is, you know, unless you know the area super well, and nowadays people are investing from all over the country, right? I mean, you got boiler rooms in Nebraska,

 

calling on and buying flipping properties in Punta Gorda, Florida. Well, they ought to know that you ought to have something on boots in the ground down here that really knows the lay of the land because there is so many idiosyncrasies and sp and about properties and and and everything that so so I feel I have a lot to you know add and as a value add. So

 

Scott Bursey (07:05)

Absolutely. It sounds like you’re really concentrating on being specialized.

 

Jack Lavoie (07:09)

Absolutely. Yeah, absolutely. The the you know twenty-four by thirty-six, three bedroom, two bedroom, two bath concrete block home and a tract subdivision. Any of my any of my colleagues can do those. I I like the tough more complex the more I get excited. So kind of a weirdo when it comes to that.

 

Scott Bursey (07:31)

So Jack, very interested to know what is the one appraisal superpower, if you will, that most investors completely overlook when they’re analyzing a deal.

 

Jack Lavoie (07:40)

Yeah, you know, you can have all these techniques, you know, you can learn about land trusts and you can learn about, you know, all these techniques, you know, subject to fix and flip. But if you don’t, if you don’t have a basic understanding of what the property value is, not so much now, but you know, you after repaired value, I always say if you miss that, okay, if you’re off by that, all of all your other numbers are are wrong.

 

And then you know you go and you you overstate by by 10% of a property and you fix it up and it doesn’t sell and and it’s a declining market.

 

By the time you realize your mistake, you dropped it, you know, five five percent. And of course the market’s dropped five percent on and you’re chasing it all the way down. It’s kind of like I don’t know if you’re a golfer, but you you get out, you you hit your tee shot, you’re off the whole rest of the hole is messed up. So

 

Unfortunately I’ve been my my my tee shots haven’t been great in the on the game too, so that really came came to me. But it’s it’s really, you know, figuring out what what it’s worth. There’s all kinds of, you know, give some good anecdotes. I can get I can give you some good lookout fors too. That, you know, just using Zillow and just using even if you have MLS access looking at comps, there are some things that

 

You ought to know before you say, that’s a perfect comp, you know. So

 

Scott Bursey (09:05)

Absolutely, Jack. That’s a game changer right there for our pros. Most guys are looking at the Zestimate, but you’re talking about true market positioning. Right.

 

Jack Lavoie (09:15)

Exactly. You know, let me give you an example, Scott. Let’s say you you have a property and you look and you know the next street over is a almost the exact same home and you look at it and say, wow, that that is you know that’s a great comp. What you don’t know is that maybe it you’re in Southwest, Florida here, where where everybody’s giving seller concessions and it sold for 300, but it also had

 

six percent or three percent, you know, it had like $18,000 worth of seller concessions. Guess what? It really only sold for $282, right? So you always you have if you’re gonna sell for 300, you have to prepare on paying those closing costs just like they did. You know, so that’s that’s that’s one thing is that when people look at sales, if seller concessions are predominant, you almost have to say, okay, the average was 300

 

But the net’s gonna be two ninety or or two eighty five. And that’s really what the market value is. And people miss that and you say, it’s only ten or fifteen thousand, but you know some, it’s ten or fifteen thousand. So

 

Scott Bursey (10:56)

Tell us, Jack, is it putting on the green the short game or is it the long vision, the drives?

 

Jack Lavoie (11:03)

For for me, it’s in the details, okay? It’s confirming the sales. It’s it’s looking at you know, I’m I’m a canal, I’m a I am a thousand yards from the Gulf of of Mexico or America. I’m not getting in that argument, by the way. I call it both, okay. Or are we a half a mile away as far as the the distance? Both get to the Gulf.

 

But one’s a $50,000 lot and one’s a million dollar lot. So it’s about the the the details. So I would say that’s more of a short game, you know, the the the delicate stuff, you know, good chipping, good putting, versus maybe just you know, more of a broader stroke might be the might be the long game of the drive. So so Scott, thank you. I didn’t realize I was gonna get talked about some about golf so much on this on this show. It’s kind of fun.

 

Scott Bursey (11:57)

Well, we love your transparency, that’s for sure. And Jack, we’re interested to know what’s the biggest blind spot you see investors falling into when they try to estimate their own ARV before calling in an expert like yourself. Yeah.

 

Jack Lavoie (12:12)

One thing is that don’t ever rely on listings. Listings is just somebody’s asking for that price. Even a pending, you say, hey, that one’s under contract. So an appraiser can go in and develop what they call a sales to list ratio. Two of them: sales for to a original list and sales to what act to actually what’s sold. So for instance, you know, maybe.

 

The last hundred sales showed that the purchase price was 96% of the final asking price. You say, okay, it’s pending. So we know on average it’s gonna be at least 4% off. You know, that’s a lot of money. But if it’s active, it might be have a ratio of 92 or 93. In other words, it might be seven or eight percent off. So people, when they say, that’s a great comp. No, actives are not.

 

Are not good comps. There, it might set the extreme upper limit. Okay. But you got to look at closed sales. And and the and the other thing is that you have to pay attention to market conditions. One of the things that I one of my specialties is I consider myself a market analyst. You know, I have tools to go in and and look at, you know, market trends, not just

 

Printing out a stupid little report from MLS that every every real estate agent, every, every person get. But going in detail, I don’t care what the market says for Cape Coral, Florida. I care about what’s the market doing for a home that was built in 1995 that’s between 1300 and 1600 square feet, that’s not on, that has no canal access. That’s the the market. And you can go through and know do.

 

price trends and supply you know supply demand ratio because the markets looking at the market really really matters it it you know it depends on it dictates your pricing you know if all of a sudden the the pricing is you know there’s a shortage and pricing going up you can be aggressive but let me tell you if it’s oversupply and the the comps and everything say it’s 300 000 it’s oversupplied and it’s going down

 

Boy, you gotta start below it because you do not wanna be chasing the values down or chasing the price down. So having somebody that can really look at market conditions, that is such a big deal. And every appraisal we do has a has a market analysis with graphs and so forth. And we look at price trends, supply, days on market.

 

the the list to price trend you know trends we also look at list to sales price ratios also look at you know REOs you know are they on the rise seller concessions are they on the rise? So I always say is taking a look at a market is it a is it a is it a is it an analytical thing or is it is it a or is it a more of a

 

Is it a skill or is it kind of a a feel? And I look at it, I take all these tools and they all kind of work together. And at the end, it just gives a good idea and kind of make a determination that market soft, market strong, but it’s all backed by data. And that’s what I like.

 

Scott Bursey (16:14)

If I’m hearing you correctly, the big nugget here is don’t be the investor who banks on an inflated number that isn’t backed by by the data.

 

Jack Lavoie (16:22)

That’s exactly right, for sure. And and never when I went to my first Appraisal Institute meeting back in I won’t even say how old how it was a long time ago, the guy said.

 

One comparable, never a market make. And that was his kind of word for saying the market isn’t dictated by that one comp that you found. Okay. So yeah, you might find a a great comp and that and that’s helpful. And that’s probably a good indicator of what sell, but but take a bigger, take a bigger look. Do dig deeper to see what, okay, what did the second best comp sell for? Sold for $40,000 less. And the third was $30,000 less.

 

You know, so we absolutely want to, you know, just market conditions and market is so is so important. Not that you’re trying to tie time it. I think putting my investor hat on, I think you buy you buy in every market. You always make sure you get a good deal. I’m not saying you do it to decide whether you want to buy, but you you you need to figure out what the market conditions so you know what what platform, what what are the rules of the game. And

 

They might have different purchase strategies, you might have different exit strategies based on what the market is. You know, so but at least you have to have the knowledge.

 

Scott Bursey (17:40)

Jack, certainly appreciate you highlighting that. Please give us the play by play on how investors can better leverage an appraiser before they buy a project rather than just waiting until they need a a loan.

 

Jack Lavoie (17:52)

Yeah, I think I think every good investor has an attorney. I think they all have good accountants. They probably have some hard money lender or their loan officer and everything. And I think they ought to hire, have a an appraiser in the back pocket. And doesn’t mean they have to get appraisal on every property, but somebody that they can use as a resource. When I meet people, I never ask for an appraisal. I always say, Hey, do you ever have any questions? You give me a call. You know, you have a

 

Yeah, have any questions on a tough, you know, CMA, I’m happy to to help you with some, you know, you know, to get you through it. And if you build a relationship with with with with somebody, an appraiser, they’ll be able to to help you and and for those times you really do need an appraisal, and also you’ll get the great service. They’ll they’ll they’ll they’ll give you the the fast turnaround time. They’ll be, you know, they’ll spend more, you know, more time. You know, one of the things I’ve been doing is

 

Depending on the knowledge and the experience of my client, I’ll go write the appraisal. And at the end, I’ll say, you know something? I’m gonna send them this appraisal. They’re gonna see all this stuff. And I’ll get on the Loom, I’ll I’ll do a Loom video, a five-minute Loom video, and I’ll say, Hey, Scott, I finished up your appraisal here. And so, you know, page one, here’s a table of contents, boom, boom, boom. And I kind of walk them through it. And so sometimes you get a little extra things like that. Couple of things when you’re looking for an appraiser.

 

Find somebody that does you don’t want to use the person who’s just used, does purchases and refinances for traditional, traditional, you know, Fannie Mae, Freddie Mac, FHA type. There nothing wrong with that type of appraiser. They’re great. That’s that’s their specialty, but you want somebody who does a lot of non-lending or or private or complex stuff, stuff that you know, hard money lenders,

 

You know, DSCR loans, you know, fix and work for the fix and flip guys, kind of the, you know, the ugly, ugly properties. And you know, you want somebody that has that experience, even if they’re not an investor, but at least they understand the investor

 

world as goes is within the appraisal appraisal context.

 

Scott Bursey (19:57)

Absolutely. Utilizing the appraiser as a consultant before the purchase, that’s an edge right there. That’s a huge edge.

 

Jack Lavoie (20:05)

In case you can’t tell, I love talking real estate. So when I I tell people, hey, you just give me, you know, if you have a question or something, give me a call. Questions are free. I’m not a I’m not some profession where we we press the time and billing. And okay, wait a minute, we’re gonna start, you know, keeping track of the time here. I I I think having having somebody to to reach out wherever you are in the country, there’s gotta be a good you know, local appraiser.

 

And then find you know, find find that person, get a get a relationship with them, pick up the phone, say, hey, I don’t, I don’t have any work for you right now, and I don’t even have a proper discuss, but you know, I’d love to, you know, work with you. And I can’t imagine an appraiser would would not want to talk for five, 10 minutes with you and just, you know, shoot the breeze and you know, start a rapport. But I would definitely think that that is one of the overlooked. Hey, everybody’s got a home inspector. And you know, you you go and you might

 

You do it, you don’t do a home inspection, and you might get you might heating system or an AC system, but depending on which part of the country, it costs you 10 grand, 15 grand. And people don’t want to lose 10 or 15,000 or the roof or all these things. But a lot of times they just think that they know, I know values. I don’t have to get an appraisal. And you can and the variance, you could lose more money

 

by being off on an appraisal, then you could most components in a home that a home inspector maybe would miss. And by the way, I’m not saying definitely get a home inspection if that’s what, if that’s what you want to you know, if if if you have the opportunity to do. But but I think the private appraiser, somebody that’s working for the buyer, not protecting the the the

 

not just doing the loan and and doing it for the for the mortgage company, but is kind of an overlooked. It’s funny. The the higher the price, you know, I I I get more five two million dollar cash purchases that appraisals, you know, they they they could they call up and it’s like okay you think they they they they know you know they’ve they’ve earned their money.

 

And they’re they’re buying cash, they don’t have to, but they will call up because they’ve realized over the years the value of I mean they didn’t earn they didn’t earn enough money where they could pay two million in cash to buy a property by not conducting smart business. And we we do a lot of cash buyers that just want to they want an independent appraisal. They’re not looking for me to go in in the in and lowball it to try to negotiate. They just want to know, so hey, I’m buying it for you know 2.5. Actually, they don’t even tell me the purchase price.

 

I they just wanna know they’re getting a fair deal and investors could probably follow follow that as well.

 

Scott Bursey (22:54)

Love it. Jack, giving it some thought, what is the one regulatory market trend in Florida right now that savvy investors should have their eye on when it comes to property valuation?

 

Jack Lavoie (23:06)

Regulatory, well, so there’s a few things going on in Florida. Actually, I’ll I’ll give you three things besides the fact that values have gone down, right? One is insurance is kind of all over the place. It went through the roof after the hurricane Ian and then continued, you know, Hurricane Milton and Helene.

 

It has actually leveled off a little bit and there’s been some good news. And you know, insurance has come down a little bit, but insurance is high and and there are things like, for instance, in every part of the country, you can put on a shingled roof or something and it lasts 20, 25 years. In Florida, it will last 20, 25 years. However, the insurance companies won’t, because they know hurricanes are coming, once you get over 10, up to close to 15 years.

 

They will raise their premiums up there, even though that roof could last another 10 years. Insurance is a big deal. Second thing is, and this is huge. If you buy a property and you are in a flood zone, you and you’re gonna go and pull a permit. Or the person you’re going to sell it to, they’re gonna pull a permit. Okay. And you’re in a flood zone, you have to unless unless the

 

The property is raised and already complies with flood zone regulations. When you pull a permit, you have to comply with what they call the FEMA 50% rule. And that is a big, big deal. And what that means is that you, if you repair a property, you can only the cost of the renovations, repairs can only be 50% of the depreciated value of the structure itself.

 

You can have a million dollar property, the $500,000 land doesn’t count, the $100,000 pool doesn’t count, the drive, this and that. So people get stuck on that. So you wanna make sure if you buy it in a flood zone, and half of Florida’s in a flood zone, I’m not saying don’t buy in a flood zone, but make sure that you are gonna be able to get the permit before you close the property. And then the last thing is if you’re doing condos.

 

For larger condos, you know, not so much worried about, you know, if you get a two-story or a three-story condo, but when you got the the the mid-rise, I mean the high rises, if you’re investing in that, know that there’s new rules requiring reserves, which is a good thing. But some of the finances of these condominium complexes are really some of them are are are getting in a tremendous amount of

 

surcharges or assessments is a is a is a better word. So those are like three Florida specific things besides regular real estate 101, right? You know, market trends and and and all that. Those are those are a few Florida, especially Southwest Florida. So

 

Scott Bursey (25:57)

That’s the trifecta of premium feel right there. Definitely something for us all to keep on our radar. It’s all about risk mitigation.

 

Jack Lavoie (26:06)

Absolutely. It’s it’s knowledge, you know. You I think every real estate investor, whether it’s a physical list or a mental checklist that they’re doing, they they like, okay, we’re gonna do the title, we gotta check this, we gotta check that, you know. Also, so add those things in. If is it is it in a flood zone? Is it, you know, you know, what’s the insurance? How old’s that roof? Okay, it looks great, it’s not leaking, but

 

When in the in the current owner, by the way, may be paying, let’s say fifteen hundred dollars a year for for insurance, okay, for insurance. When and and and it gets raised, you know, you know, a little bit every year. When you go and buy that property and they send the person out to to look at it after after you’ve closed, by the way, they give you they give you the price. It’s probably, you know, but they go out and they find out it’s it’s 15 years old, even though

 

It’s a perfectly fine roof. Now you’re looking at three grand. So that’s $1,500 worth of cash flow. Investors take $1,500 annually, capitalize that, and you know, that’s you know, that’s $15 to $20,000 in value. I mean, and now you have to put a brand you have to put a roof on. Because the person you flip it to or resell it to, that homeowner doesn’t want to pay $3,000 for insurance. So

 

So you have to put a a roof on a property that you never ever planned on having to do. So just a couple of things like that.

 

Scott Bursey (27:35)

Thank you for highlighting that. And Jack, if you could walk us through the best way an investor can prep a property file for you to ensure that the appraisal reflects the true maximum potential value.

 

Jack Lavoie (27:48)

Yeah. Yeah. You know if you’re if you’re

 

If you fix up a property and so well, first of all, a good appraiser should be to look past any cause, you know, not cosmetics, but should be able to look any personal property, you know, just dishes in the sink or whatever. It doesn’t matter. I think.

 

If if an appraiser is gonna go in on a property and it’s a half you’re gonna be there for half an hour, and that’s that one look at it. And they see a lot of like just little things that are maybe cheaped out a little bit, you know. Maybe the the the molding isn’t the joints aren’t all that great, or the there’s a you know, the tile isn’t a what what are we supposed to assume on some of the bigger things that maybe were done? You know what I mean? So just

 

Look at it through the eyes of the buyer. Not that those little things will affect the overall value of it in the big picture, but perception is see an appraiser. We have to go in and and we have to kind of rate the property as far as not only quality but condition. So we have to try to find you know properties that are similar condition. We have to find we we have to.

 

Judge them against others similar grade, you know. So if all of a sudden we’re putting, you know, the whole lipstick on a on a pig and the, you know, that’s not going to be compared to another home that’s still, you know, same square footage, you know, 1600 square feet, three bedrooms, two baths, two car garage, 10,000 square foot lot, same area, but one’s got, you know, better countertops, but you know, more cabinets, higher, higher grade, you know.

 

taller cabinets and so stuff like that, you know, some of those finishes, it wouldn’t cost much more to to bring it up to a, you know, a, you know, a comparable level to where where you hope it your home is going to be compared to, you know, both from the from the final appraisal, but also the ultimate appraiser. You know who the ultimate appraiser is? The buyer who comes through.

 

The buyer comes in and says, Yep, that’s four. I want I want to buy that for $400,000. They’re the ones who ultimately decide what it’s worth. And you want to do everything through the eyes of the buyer.

 

Scott Bursey (30:10)

Pro level advice right there. And Jack, you’ve given us so much really good advice, actionable advice that we can apply right away. But is there any additional words of wisdom that you can leave with our pros today?

 

Jack Lavoie (30:23)

Words of wisdom. You know, I think due diligence and not just value not just in valuation, but know what you get, right? Always, you know, you you you buy in a property and it’s a three unit property. Take the time to go down to the county or the town or the city or whatever to make sure that

 

do the due diligence to make sure that there’s not a some kind of adverse development that’s going behind it.

 

do a rental analysis. By the way, an appraiser can do a rental appraisal. Basically, it’s the same thing. You just go and you figure out what’s gonna be a market rent. So that would be my biggest thing. Not to we don’t want paralysis by analysis, right? A good good investor goes and they see a property, they they tie it up for you know cheap money.

 

And I’m talking about the due diligence before you commit real money, right? You got it under contract, you do your due diligence. Boy, I didn’t, I didn’t know we got ourselves in that and you’re out. No problem. But before you commit your money or you’re signing on a note or you’re putting in your good money, make sure that you do your due diligence. That would be my words of wisdom, whether it’s appraisal related or not.

 

Scott Bursey (31:37)

Those are great words of wisdom. And Jack, this has been an absolute fantastic conversation. For those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you. What’s the best way for them to reach you?

 

Jack Lavoie (31:51)

Tell you, let me give you my website is easy and and my email is actually easy. It is [email protected]. And that appraiser is singular. So myfloridaappraiser.com is my website. You can find me there. There’s a couple of links you could just shoot me an email. Use me as a resource. Use me as a resource. I’m happy to to answer any questions, kind of point you in the right direction.

 

And and if you need an appraisal, certainly I could help out that way, but I also have a pretty good network of other appraisers in other parts of Florida and even part of the country. So be an appraisal point guy.

 

Scott Bursey (32:29)

You’ve certainly pointed our pros in the right direction today, Jack. Thank you so much for joining us.

 

Jack Lavoie (32:34)

Thank you very much. Really appreciate it. It was a lot of fun.

 

Scott Bursey (32:35)

Care and to our listeners we appreciate you if you receive value from today’s episode please subscribe we’ll be filling your tanks with a lineup of elite guests just like Jack Lavoie who are accelerating and setting the pace for the rest of the industry until next time keep your standards high and your vision clear we’ll see you on the next episode everyone