If you are keen to set out as a single-family rental home investor in Brainerd, one of the most salient terms you first need to understand and appreciate is After Repair Value (ARV). The after-repair value of a property is applicable to the value of a property that has been spruced up or renovated. More categorically, ARV concerns the estimated future value of the property, including all of the repairs and enhancements. To have knowledge of your property’s ARV and use it perfectly, you will first need to take into consideration how to calculate it well. Keep reading to learn the steps to appropriately calculate the ARV for any investment property.
Research Market Analysis
One of the surest ways to calculate your property’s ARV is to carry out a competitive market analysis. By checking over comparable properties (comps) that have recently sold, you can get a better idea of what your property’s new market value will be. Quite a lot of investors set out by going over the multiple listing service (MLS) for recently sold properties that are pretty much the same as your freshly done, spruced-up rental house as possible. By way of example, you would want to distinguish comps that are almost the same as your property in age, size, location, construction method and style, and condition. Specifically, gather at least three recently sold comps (i.e., sold within the last 90 days) that detail recent enrichments or improvements.
Calculate ARV
Once you have found three or more suitable comps, you can then calculate your property’s after-repair value (ARV). There are two general methods:
- Find the average sales price of comparable properties. To cite an instance, if you found three excellent 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 can effectively be used to estimate the likely sales price of your own single-family rental house after updates 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 means it can be a bit more factual and accurate than the first option, but it does require a few additional steps.
Utilize Your ARV
Once you detect your property’s ARV, you can use it in several ways. Firstly, it can enable you to set a more exact rental rate. By taking into account how your newly renovated property compares to others in the neighborhood, you can ascertain that you are securing your rental home’s potential. Another means that investors regularly use after repair value is when making a purchase of investment properties.
When acquiring 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 can then be utilized to determine where to start bidding for a property. Now and then, investors may go as high as 80% ARV, which really boosts the chance of an acceptable offer. But take note, the higher the ARV you use to ascertain your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and ability. While certain investors learn to do so on their own, it can be suitable to rely on the perception of a real estate professional or property management expert. Either one can allow you to locate comparable properties and really make sure that your calculations display the true nature of the property, its location, and its future opportunities as a rental house.
Have you recently endeavored to make and complete renovations on your investment property? Contact Real Property Management Deluxe and openly ask for your FREE rental market analysis to ascertain you stay competitive. Call us at 218-454-7368 to speak with a Brainerd property manager today.
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