If you are apt and ready to dive in as a single-family rental home investor in Wilmington, one of the most focal terms you first need to be conscious of is After Repair Value (ARV). The after-repair value of a property concerns the value of a property that has been updated or renovated. More distinctively, ARV cites the estimated future value of the property, including all of the repairs and expansions. To get your property’s ARV and use it well, you will first need to detect how to calculate it properly. Keep reading to comprehend the steps to rightly calculate the ARV for any investment property.
Research Market Analysis
One of the most efficient ways to calculate your property’s ARV is to carry out a competitive market analysis. By taking into account 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 kick off by digging into the multiple listing service (MLS) for recently sold properties that are nearly the same as your newly upgraded rental house as possible. Take one example, you would want to spot comps that are identical to your property in age, size, location, construction method and style, and condition. To be specific, locate at least three recently sold comps (i.e., sold within the last 90 days) that detail recent enhancements or improvements.
Calculate ARV
Once you have found three or more exact comps, you can then calculate your property’s after-repair value (ARV). There are two most utilized methods:
- Find the average sales price of comparable properties. For instance, if you found three excellent 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 shall also be used to estimate the likely sales price of your own single-family rental house after current 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 tactic can be a bit more accurate than the first option, but it does require several additional steps.
Utilize Your ARV
Once you know your property’s ARV, you can use it in several ways. Particularly, it can contribute to you setting a more definitive rental rate. By considering how your newly renovated property compares to others in the neighborhood, you can nail down that you are really maximizing your rental home’s potential. Another practice that investors ordinarily use after repair value is when acquiring investment properties.
When buying 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 distinguish where to start bidding for a property. Every once in a while, investors may go as high as 80% ARV, which especially increases the chance of an acceptable offer. It needs to be said though that 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 practice and expertise. While most investors learn to do so on their own, it can be valuable to rely on the understanding of a real estate professional or property management expert. Either one can enable you to locate comparable properties and always warrant that your calculations denote the true nature of the property, its location, and its potential future as a rental house.
Have you recently applied for renovations on your investment property? Contact Real Property Management Champion and make a claim for your FREE rental market analysis to nail down your stay competitive. Call us at 910-638-0190 to speak with a Wilmington property manager today.
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