If you are getting ready to start as a single-family rental home investor in College Station, After Repair Value (ARV) is one of the first terms you need to be familiar with. The value of a property that has been fixed up or renovated is called the after repair value. 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.
Do a competitive market analysis to calculate your property’s after repair value. That is one of the best ways to do it. 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 search the multiple listing service (MLS) as a start. They will look for recently sold properties similar to your new, improved rental house. To start, 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 in particular.
You may calculate your property’s after repair value after you have found three or more decent comps. One way is to compute the average sales price of the comps 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. The figure you come up with will be your property’s after repair value (ARV), a number that should be used to estimate the likely sales price of your single-family rental house after improvements and repairs.
A different way to calculate your property’s after repair value is by figuring out the average price per square foot of your comparable properties. Dividing the total sales price by the average square footage of your comps will give you this number. With an average price per square foot, you can then multiply that price by the number of square feet in your rental property. Even if it requires a few extra steps, this method is a bit more precise than the first one.
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. You can make sure that you are maximizing your rental home’s potential when you understand how your improved property compares to others in the neighborhood. An investor may also use after repair value when buying investment properties.
Take 70% of the property’s after repair value and subtract the cost of repairs when you purchase a new investment property. The resulting amount 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. 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. A lot of investors learn to do so on their own. However, others may 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?
You can request your FREE rental market analysis when you call Real Property Management. We’ll help you stay competitive. Call us at 254-401-0400 to speak with a College Station property manager today.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
