If you are open-minded and ready to embark as a single-family rental home investor in Savage, one of the most necessary terms you first need to be knowledgeable of is After Repair Value (ARV). The after-repair value of a property cites the value of a property that has been restored or renovated. More accurately, ARV has to do with the estimated future value of the property, including all of the repairs and upgrades. To perceive your property’s ARV and use it favorably, you will first need to be familiar with how to calculate it correctly. Keep reading to know the steps to finely calculate the ARV for any investment property.
Research Market Analysis
One of the practical methods to calculate your property’s ARV is to complete a competitive market analysis. By paying attention to comparable properties (comps) that have recently sold, you can get an excellent picture of what your property’s new market value will be. Almost all investors embark on this endeavor by checking out the multiple listing service (MLS) for recently sold properties that are comparable with your brand-new, restored rental house as possible. For instance, you would want to check comps that are equal to your property in age, size, location, construction method and style, and condition. And specifically, get a hold of at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
Calculate ARV
Once you have found three or more befitting comps, you can then calculate your property’s after-repair value (ARV). There are two most widely used methods:
- Find the average sales price of comparable properties. Specifically, if you found three appropriate comps, add their sold prices together, then divide by three, and you would have the average price. This number is your property’s after-repair value (ARV), a number that has to be used to estimate the likely sales price of your own single-family rental house after current improvements 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 technique can be a bit more defined than the first option, but it does require a number of steps.
Utilize Your ARV
Once you definitely know your property’s ARV, you can use it in several ways. Before all else, it can give you the chance to set a more exact rental rate. By perceiving how your newly renovated property compares to others in the neighborhood, you can be sure that you are developing and boosting your rental home’s potential. Another way that investors, on a regular, basis use after-repair value is when you’re trying to buy investment properties.
When looking for and buying a new investment property, you may have to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then allow you to distinguish where to start bidding for a property. In a few cases, investors may go as high as 80% ARV, which inherently optimizes the chance of an acceptable offer. But in fact, the higher the ARV you use to have knowledge of your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and capability. While almost all investors learn to do so on their own, it can be of great help to rely on the ability of a real estate professional or property management expert. Either one can really help you locate comparable properties and make certain that your calculations disclose the true nature of the property, its location, and its future contribution as a rental house.
Have you recently carried out renovations on your investment property? Contact Real Property Management Liberty and don’t be shy to ask for your FREE rental market analysis to make sure you stay competitive. Call us at 952-900-1717 to speak with a Savage property manager today.
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