If you are excited to get the ball rolling as a single-family rental home investor in Homewood, one of the most vital terms you first need to catch on to is After Repair Value (ARV). The after-repair value of a property points to the value of a property that has been totally fixed up or renovated. More precisely, ARV connotes the estimated future value of the property, including all of the repairs and transformations. To take into account your property’s ARV and use it fairly well, you will first need to take in how to calculate it correctly. Keep reading to actually know the steps to suitably calculate the ARV for any investment property.
Research Market Analysis
One of the most efficient means to calculate your property’s ARV is to take a competitive market analysis. By checking out comparable properties (comps) that have recently sold, you can get a better idea of your property’s new market value. Masses of investors start out by going into the multiple listing service (MLS) for recently sold properties that are the same as your newly updated and renovated rental house as possible. Such as for instance, you would want to look at comps that are matching your property in age, size, location, construction method and style, and condition. Particularly, select at least three recently sold comps (i.e., sold within the last 90 days) that detail recent renovations or improvements.
Calculate ARV
Once you have found three or more great comps, you can calculate your property’s after-repair value (ARV). There are two most frequent methods:
- Find the average sales price of comparable properties. As an illustration, if you found three right comps, added their sold prices together, then divided by three, you would have the average price. This number is your property’s after-repair value (ARV), a number that is supposed to be used to estimate the likely sales price of your own single-family rental house after developments and repairs.
- Find the average price per square foot of your comparable properties. 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 way can be a bit more thorough than the first option, but it does require a lot of other steps.
Utilize Your ARV
Once you have your property’s ARV, you can use it in several ways. Specifically, it can enable you to set a more accurate rental rate. By taking into account how your newly renovated property compares to others in the neighborhood, you can ascertain that you are growing your rental home’s potential. Another means that investors regularly use after repair value is when making a purchase of investment properties.
When procuring a new investment property, you just take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then be advantageous to you to understand where to start bidding for a property. Now and then, investors may go as high as 80% ARV, which greatly increases the chance of an acceptable offer. Without a doubt though, the higher the ARV you use to comprehend your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and actual skill. While the majority of investors learn to do so on their own, it can be suitable and helpful to rely on the abilities of a real estate professional or property management expert. Either one can certainly assist you to locate comparable properties and really make sure that your calculations reflect the true nature of the property, its location, and its future prospects as a rental house.
Have you recently endeavored to apply renovations to your investment property? Contact Real Property Management Victory and put forward a request for your FREE rental market analysis to ascertain you stay competitive. Call us at 205-793-0700 to speak with a Homewood property manager today.
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