If you are set up and keen to start as a single-family rental home investor in Lewisville, one of the most focal terms you first need to be aware of is After Repair Value (ARV). The after-repair value of a property actually refers to the value of a property that has been developed or renovated. More characteristically, ARV is based on the estimated future value of the property, including all of the repairs and enhancements. To identify your property’s ARV and use it adequately, you will first need to take into account how to calculate it rightly. Keep reading to apprehend the steps to rightly calculate the ARV for any investment property.
Research Market Analysis
One of the common practices to calculate your property’s ARV is to bring about a competitive market analysis. By taking a look at comparable properties (comps) that have recently sold, you can get a solid idea of what your property’s new market value will be. Numerous investors quickly start by delving into the multiple listing service (MLS) for recently sold properties that are equivalent to or similar to your recently updated, developed rental house as possible. To cite an instance, you would want to see comps that are the same thing as your property in age, size, location, construction method and style, and condition. To be exact, single out at least three recently sold comps (i.e., sold within the last 90 days) that detail recent embellishments or improvements.
Calculate ARV
Once you have found three or more very good comps, you can then calculate your property’s after-repair value (ARV). There are two accepted methods:
- Find the average sales price of comparable properties. As a sample, if you found three suitable 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 is necessary to be used to estimate the likely sales price of your own single-family rental house after upswings 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 exact than the first option, but it does require several additional steps.
Utilize Your ARV
Once you grasp your property’s ARV, you can use it in several ways. Notably, it can let you set a more thorough and accurate rental rate. By distinguishing how your newly renovated property compares to others in the neighborhood, you can always make sure that you are boosting your rental home’s potential. Another usual way that investors many times use after-repair value is when buying investment properties.
When procuring 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 be of help to you to be aware of where to start bidding for a property. Periodically, investors may go as high as 80% ARV, which fundamentally increases the chance of an acceptable offer. But naturally, the higher the ARV you use to comprehend your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and practical skill. While particular investors learn to do so on their own, it can be applicable to rely on the expertise of a real estate professional or property management expert. Either one can assist you to locate comparable properties and always make certain that your calculations express the true nature of the property, its location, and its future options as a rental house.
Have you recently enacted renovations on your investment property? Contact Real Property Management Pioneer and feel free to ask for your FREE rental market analysis to always make sure you stay competitive. Call us at 940-435-2526
to speak with a Lewisville property manager today.
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