If you are prepared and earnest to start off as a single-family rental home investor in Forest Hills, one of the most basic terms you first need to understand is After Repair Value (ARV). The after-repair value of a property denotes the value of a property that has been totally fixed up or renovated. More particularly, ARV is related to the estimated future value of the property, including all of the repairs and updates. To determine your property’s ARV and use it to your benefit, you will first need to know exactly how to calculate it correctly. Keep reading to know the steps to rightly calculate the ARV for any investment property.
Research Market Analysis
One of the ideal means to calculate your property’s ARV is to complete a competitive market analysis. By examining comparable properties (comps) that have recently sold, you can get a fairly good idea of what your property’s new market value will be. Most investors set off by viewing the multiple listing service (MLS) for recently sold properties that are much the same as your renovated and fixed-up rental house as possible. For instance, you would want to look closely at comps that are as much as your property in age, size, location, construction method and style, and condition. Expressly, find at least three recently sold comps (i.e., sold within the last 90 days) that detail recent positive 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 popular methods:
- Find the average sales price of comparable properties. For illustration, if you found three attractive 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 must 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 activity can be a bit more exact than the first option, but it does require a further step.
Utilize Your ARV
Once you definitely know your property’s ARV, you can use it in several ways. For a start, it can be used to set a more factual rental rate. By getting to know how your newly renovated property compares to others in the neighborhood, you can certainly make sure that you are boosting your rental home’s potential. Another way that investors mostly use after-repair value is when procuring investment properties.
When procuring 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 you can then use to pinpoint where to start bidding for a property. A few times, investors may go as high as 80% ARV, which consequently increases the chance of an acceptable offer. But on the other hand, the higher the ARV you use to give 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 most investors learn to do so on their own, it can be effective to rely on the experienced skill of a real estate professional or property management expert. Either one can be advantageous to you to locate comparable properties and see to it that your calculations convey the true nature of the property, its location, and its future possibilities as a rental house.
Have you recently accomplished renovations on your investment property? Contact Real Property Management Innovation and make a request for your FREE rental market analysis to totally ensure you stay competitive. Call us at 516-570-9275 to speak with a Forest Hills property manager today.
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