If you are ready to set things moving as a single-family rental home investor in Frederick, one of the most crucial terms you first need to know is After Repair Value (ARV). The after-repair value of a property signifies the value of a property that has been beautifully upgraded or renovated. More particularly, ARV points to the estimated future value of the property, including all of the repairs and renovations. To get your property’s ARV and use it wisely, you will first need to comprehend how to calculate it in an appropriate manner. Keep reading to be aware of the steps to perfectly calculate the ARV for any investment property.
Research Market Analysis
One of the most appropriate ways to calculate your property’s ARV is to bring about a competitive market analysis. By focusing on comparable properties (comps) that have recently sold, you can get a real idea of your property’s new market value. Most investors get started by inquiring into the multiple listing service (MLS) for recently sold properties that are very much like your beautifully fixed up and renovated rental house as possible. Such as for instance, you would want to get comps that are basically the same as your property in age, size, location, construction method and style, and condition. To be specific, seek out at least three recently sold comps (i.e., sold within the last 90 days) that detail recent changes or improvements.
Calculate ARV
Once you have found three or more nice comps, you can calculate your property’s after-repair value (ARV). There are two most widely used methods:
- Find the average sales price of comparable properties. For instance, if you found three nice 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 meant to be used to estimate the likely sales price of your own single-family rental house after upgrades 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 method can be a bit more accurate and detailed than the first option, but it does require many additional steps.
Utilize Your ARV
Once you identify your property’s ARV, you can use it in several ways. Primarily, it can allow you to set a more precise rental rate. By comprehending how your newly renovated property compares to others in the neighborhood, you can see to it that you are optimizing your rental home’s potential. Another process that investors generally use after repairing value is when looking for investment properties.
When buying out a new investment property, you may simply take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then help you ascertain where to start bidding for a property. At other times, investors may go as high as 80% ARV, which strongly grows the chance of an acceptable offer. But in fact, 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 proficiency. While a large number of investors learn to do so on their own, it can be useful to rely on the skill and experience of a real estate professional or property management expert. Either one can effectively help you locate comparable properties and completely make sure that your calculations convey the true nature of the property, its location, and its future potential as a rental house.
Have you recently executed renovations on your investment property? Contact Real Property Management Prime and send in a request for your FREE rental market analysis to make certain you stay competitive. Call us at 410-415-1736 to speak with a Frederick property manager today.
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