If you are ready and enthusiastic to start as a single-family rental home investor in Raleigh Court, one of the most pertinent terms you first need to discover is After Repair Value (ARV). The after-repair value of a property has to do with the value of a property that has been beautifully fixed up or renovated. More precisely, ARV denotes the estimated future value of the property, including all of the repairs and enhancements. To get to know your property’s ARV and use it to your advantage, you will first need to learn how to calculate it correctly. Keep reading to grasp well the steps to properly calculate the ARV for any investment property.
Research Market Analysis
One of the ideal ways to calculate your property’s ARV is to do a competitive market analysis. By checking comparable properties (comps) that have recently sold, you can get a very good idea of what your property’s new market value will be. The majority of investors start by looking into the multiple listing service (MLS) for recently sold properties that are as matching your restored, fixed-up rental house as much as possible. As an example, you would want to hunt for comps that are the same as your property in age, size, location, construction method and style, and condition. Particularly, get at least three recently sold comps (i.e., sold within the last 90 days) that detail recent advancements or improvements.
Calculate ARV
Once you have found three or more really good comps, you can calculate your property’s after-repair value (ARV). There are two customary methods:
- Find the average sales price of comparable properties. By way of illustration, if you found three similar 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 enhancements 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 accurate than the first option, but it does require more additional steps.
Utilize Your ARV
Once you know your property’s ARV, you can use it in several ways. Chiefly, it can be used to your advantage to set a more precise rental rate. By being aware of how your newly renovated property compares to others in the neighborhood, you can totally ensure that you are doubling your rental home’s potential. Another way that investors regularly use after-repair value is when securing investment properties.
When purchasing 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 you can then use to determine where to start bidding for a property. In a few cases, investors may go as high as 80% ARV, which definitely improves the chance of an acceptable offer. But really, the higher the ARV you use to make your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes much practice and ability. While countless investors learn to do so on their own, it can be favorable to rely on the proficiency of a real estate professional or property management expert. Either one can be beneficial to you to locate comparable properties and safeguard that your calculations unveil the true nature of the property, its location, and its future prospects as a rental house.
Have you recently finished renovations on your investment property? Contact Real Property Management Colonial and put in a request for your FREE rental market analysis to warrant you stay competitive. Call us at 540-595-7411 to speak with a Raleigh Court property manager today.
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