Are you ready to get started as a single-family rental home investor in Pleasanton? Then you need to know what After Repair Value (ARV) is. A property’s after repair value 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.
One of the best ways that you can calculate your property’s after repair value is by doing a competitive market analysis. To get a good idea of what your property’s new market value could be, try looking at recently sold comparable properties (comps). Searching the multiple listing service (MLS) is a good start. This is what many investors do. Run a search for recently sold properties that are similar to your new, improved rental house. Comps that are very similar to your property in age, size, location, construction method and style, and condition are what you should look out for. At least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements would be a good number.
Calculate your property’s after repair value after you have found three or more decent comps. A way to do this is to find 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 figure would be 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 may also want to figure out the average price per square foot of your comparable properties. This is also a good way to calculate your property’s after repair value. You can get this figure when you 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. Although it requires a few extra steps, this method may a bit more precise than the first option.
Once you know your property’s ARV, you can use it in several ways. One, it helps you set a more accurate rental rate. Once you understand how your improved property compares to others in the neighborhood, you can be sure that you are maximizing your rental home’s potential. When buying investment properties, investors can also opt to use after repair value.
When investing in a new property, take 70% of the property’s after repair value and subtract the cost of repairs and improvements. This will give you the offer price, which helps 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. 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. Even if many investors learn to do so on their own, others still seek the assistance of a real estate professional or property management expert. Either way, they can help you locate comparable properties while ensuring that your calculations reflect the true nature of the property, its location, and its future potential as a rental house.
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