If you are decided and ready to begin as a single-family rental home investor in Delta, one of the most critical terms you first need to truly grasp is After Repair Value (ARV). The after-repair value of a property actually connotes the value of a property that has been rehabilitated or renovated. More thoroughly, ARV points to the estimated future value of the property, including all of the repairs and advancements. To ascertain your property’s ARV and use it accordingly, you will first need to be aware of how to calculate it fittingly. Keep reading to know and understand the steps to efficiently calculate the ARV for any investment property.
Research Market Analysis
One of the best practices to calculate your property’s ARV is to apply a competitive market analysis. By examining comparable properties (comps) that have recently sold, you can get the right idea of what your property’s new market value will be. Innumerable investors get started by examining the multiple listing service (MLS) for recently sold properties that are essentially the same way as your recently done, rehabilitated rental house possible. For instance, you would want to check out comps that are equivalent to your property in age, size, location, construction method and style, and condition. To do this exactly, distinguish at least three recently sold comps (i.e., sold within the last 90 days) that detail recent renovations or improvements.
Calculate ARV
Once you have found three or more satisfactory comps, you can then calculate your property’s after-repair value (ARV). There are two popularly used methods:
- Find the average sales price of comparable properties. In particular, if you found three right 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 necessary to be used to estimate the likely sales price of your own single-family rental house after the latest 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 manner can be a bit more detailed than the first option, but it does require several other steps.
Utilize Your ARV
Once you discover your property’s ARV, you can use it in several ways. Fundamentally, it can really help you to set a less questionable rental rate. By grasping well how your newly renovated property compares to others in the neighborhood, you can warrant that you are amplifying your rental home’s potential. One other way that investors generally use after-repair value is when acquiring 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 can then help you really understand where to start bidding for a property. At times, investors may go as high as 80% ARV, which very much magnifies the chance of an acceptable offer. But certainly, the higher the ARV you use to establish 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 innumerable investors learn to do so on their own, it can be beneficial to rely on the skill of a real estate professional or property management expert. Either one can effectively help you to locate comparable properties and make sure that your calculations exhibit the true nature of the property, its location, and its future potential and opportunities as a rental house.
Have you recently done renovations on your investment property? Contact Real Property Management Now and just request your FREE rental market analysis to warrant you stay competitive. Call us at 970-644-0600 to speak with a Delta property manager today.
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