If you are preparing to be a single-family rental home investor in Rockledge, one of the important terms you first have to learn is After Repair Value (ARV). The after repair value of a property is 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.
To calculate your property’s after repair value, do a competitive market analysis. That is one of the best ways to do it. To get a good idea of what your property’s new market value could be, look at comparable properties (comps) that have recently sold. A lot of investors will start by searching the multiple listing service (MLS) for properties similar to your new, improved rental house that has recently been sold. As an example, you would want to find comps that are very similar to your property in age, size, location, construction method and style, and condition. In particular, look for at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
After you have found three or more decent comps, calculate your property’s after repair value. An easy way to do this is to compute the average sales price of the properties you found. For example, if you found three good comps, add their sold prices together, then divide by three, you would have the average price. This average 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.
You can also figure out the average price per square foot of your comparable properties. This is another way of calculating your property’s after repair value. You can do this by dividing 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 method will a bit more precise than the first one, although you will need to do a few extra steps.
Once you know your property’s ARV, you can use it in several ways. It helps in setting a more accurate rental rate for your home. You can maximize your rental home’s potential when you understand how your property compares to others in the neighborhood. Other investors usually use after repair value when buying investment properties.
When you invest in a new property, you will want to take 70% of the property’s after repair value and subtract the cost of repairs and improvements. The resulting figure will be the offer price. This will help you know 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. Consequently, the higher the ARV you use to determine your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after repair value takes practice and skill. Although a lot of investors learn to do so on their own, others also seek the assistance of a real estate professional or property management expert. Both can help you locate comparable properties and at the same time ensure that your calculations reflect the true nature of the property, its location, and its future potential as a rental house.
Have you recently completed renovations on your investment property?
Get in touch with Real Property Management Brevard and request your FREE rental market analysis to ensure your competitiveness. Call us at 321-610-8022 to speak with a Rockledge property manager today.
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