If you are going to be a single-family rental home investor in Smyrna, one of the most important terms you need to know what After Repair Value (ARV) is. The after repair value of a property means the value of a property that has been fixed up or renovated. More specifically, ARV refers to the estimated future value of the property, including all of the repairs and improvements. To figure out your property’s ARV and use it correctly, you will first need to know how to calculate it accurately.
Doing a competitive market analysis is one of the best ways to calculate your property’s after repair value. Check out recently sold comparable properties (comps). That will give you a good idea of what your property’s new market value will be. Most investors begin by looking for properties similar to your new, improved rental house that has been sold recently. They do this by searching the multiple listing service (MLS). You will want to find comps that are very similar to your property in age, size, location, construction method and style, and condition. Keep an eye out for at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
When you have found three or more decent comps, you can now calculate your property’s after repair value. Using the average sales price of the comps you found is one way to do this. For example, if you found three good comps, add their sold prices together, then divide by three, you would have the average price. The answer to your computation is your property’s after repair value (ARV), a number that should be used to estimate the likely sales price of your own single-family rental house after improvements and repairs.
If you want to be more precise, you can calculate your property’s after repair value by figuring out the average price per square foot of your comparable properties. This is how you do it: divide the total sales price by the average square footage of your comps. With an average price per square foot, you can then multiply that price by the number of square feet in your rental property. This is a bit more precise than the first method, and it also requires a few extra steps.
Once you know your property’s ARV, you can use it in several ways. If you want to set a more accurate rental rate, knowing your ARV can help you. By seeing how your now-improved property compares to others in the neighborhood, you can surely maximize your rental home’s potential. After repair value is also one figure investors use when buying investment properties.
If you are going to purchase a new investment property, you’ll want to take 70% of the property’s after repair value and subtract the cost of repairs and improvements. The resulting value is the offer price, which can help you determine where to start bidding for a property. In some cases, investors may go as high as 80% ARV, which significantly increases the chance of an acceptable offer. Remember, the higher the ARV you use to determine your offer price, the higher the risk for your profit margins afterward.
Calculating an accurate after repair value takes practice and skill. Though many investors learn to do so on their own, others seek the assistance of a real estate professional or property management expert. Either of them can help you locate comparable properties as well as ensure that your calculations reflect the true nature of the property, its location, and its future potential as a rental house.
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