If you are preparing to be a single-family rental home investor in Argyle, 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.
Doing a competitive market analysis is one of the best ways to calculate your property’s after repair value. When you look at comparable properties (comps) that have recently sold, you could get a good idea of what your property’s new market value could be. 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. You will 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.
Calculate your property’s after repair value after you have found three or more decent comps. 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. This 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. 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. Setting a more accurate rental rate for your home becomes easier with your ARV figured out. By seeing how your now-improved property compares to others in the neighborhood, you can surely maximize your rental home’s potential. Investors also use the after repair value 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. Bear in mind that 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. Either one 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.
Have you recently completed renovations on your investment property?
Get in touch with Real Property Management Lakeview and request your FREE rental market analysis to ensure your competitiveness. Call us at 940-323-0505 to speak with an Argyle property manager today.
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