If you are all set to hit the ground running as a single-family rental home investor in Brentwood, one of the most relevant terms you first need to perceive and know is After Repair Value (ARV). The after-repair value of a property is connected to the value of a property that has been restored or renovated. More accurately, ARV talks of the estimated future value of the property, including all of the repairs and enhancements. To easily know your property’s ARV and use it suitably, you will first need to really understand how to calculate it effortlessly and properly. Keep reading to assimilate the steps to properly calculate the ARV for any investment property.
Research Market Analysis
One of the best approaches to calculating your property’s ARV is to fulfill a competitive market analysis. By paying attention to comparable properties (comps) that have recently sold, you can get a straightforward idea of what your property’s new market value will be. Many investors hit the ground running fast by examining the multiple listing service (MLS) for recently sold properties that are as similar to your brand new, restored rental house as possible. For instance, you would want to acquire comps that are very similar to your property in age, size, location, construction method and style, and condition. Specifically, locate at least three recently sold comps (i.e., sold within the last 90 days) that detail recent reconstructions 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 typical methods:
- Find the average sales price of comparable properties. In particular, if you found three very best comps, added 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 needs to be used to estimate the likely sales price of your own single-family rental house after renovations 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 system can be a bit more definite and accurate than the first option, but it does require various other steps.
Utilize Your ARV
Once you clearly know your property’s ARV, you can use it in several ways. Mainly, it can easily help you to set a more factual and accurate rental rate. By really understanding how your newly renovated property compares to others in the neighborhood, you can see to it that you are amplifying your rental home’s potential. Another practical way that investors often use after-repair value is when procuring investment properties.
When bagging a new investment property, you may take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then be used to know clearly where to start bidding for a property. Once in a while, investors may go as high as 80% ARV, which naturally magnifies the chance of an acceptable offer. Obviously, the higher the ARV you use to work out your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and practical skill. While a lot of investors learn to do so on their own, it can be good to rely on the knowledge of a real estate professional or property management expert. Either one can be of use to help you locate comparable properties and see to it that your calculations disclose the true nature of the property, its location, and its due potential as a rental house.
Have you recently completed renovations on your investment property? Contact Real Property Management Investor’s Choice and don’t hesitate to ask for your FREE rental market analysis to see to it you stay competitive. Call us at 615-810-9578 to speak with a Brentwood property manager today.
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