If you are all set to start as a single-family rental home investor in Parkville, one of the most vital terms you first need to learn is After Repair Value (ARV). The after-repair value of a property connotes the value of a property that has been improved or renovated. More explicitly, ARV pertains to the estimated future value of the property, including all of the repairs and upgrades. To ascertain your property’s ARV and use it fittingly, you will first need to have knowledge of how to calculate it properly. Keep reading to hear the steps to rightly calculate the ARV for any investment property.
Research Market Analysis
One of the effective means to calculate your property’s ARV is to actualize a competitive market analysis. By inspecting comparable properties (comps) that have recently sold, you can get a very clear idea about what your property’s new market value will be. A vast number of investors quickly start by looking for the multiple listing service (MLS) for recently sold properties that are very much the same as your up-to-date, fixed-up rental house possible. As an example, you would want to examine comps that are alike your property in age, size, location, construction method and style, and condition. Particularly, ascertain at least three recently sold comps (i.e., sold within the last 90 days) that detail recent refinements or improvements.
Calculate ARV
Once you have found three or more ideal comps, you can calculate your property’s after-repair value (ARV). There are two commonly used methods:
- Find the average sales price of comparable properties. For a case in point, if you found three best-suited comps, add their sold prices together, then divide by three, you would have the average price. This number is your property’s after-repair value (ARV), a number that needs 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 procedure can be a bit more particular and accurate than the first option, but it does require many other steps.
Utilize Your ARV
Once you calculate and get your property’s ARV, you can use it in several ways. Initially, it can lead you to set a more specific rental rate. By knowing how your newly renovated property compares to others in the neighborhood, you can always make certain that you are optimizing your rental home’s potential. Another endeavor that investors always use after repair value is when getting investment properties.
When buying a new investment property, you may need to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then enable you to realize where to start bidding for a property. In rare cases, investors may go as high as 80% ARV, which undeniably escalates the chance of an acceptable offer. But in turn, the higher the ARV you use to get 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 vast number of investors learn to do so on their own, it can actually help to rely on the skill of a real estate professional or property management expert. Either one can give you the chance to locate comparable properties and always make sure that your calculations disclose the true nature of the property, its location, and its due potential as a rental house.
Have you recently fulfilled renovations on your investment property? Contact Real Property Management Principles and make a request for your FREE rental market analysis to always ensure that you stay competitive. Call us at 816-890-9800 to speak with a Parkville property manager today.
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