If you are ready to get down to business as a single-family rental home investor in Batesville, one of the most relevant terms you first need to have knowledge of is After Repair Value (ARV). The after-repair value of a property indicates the value of a property that has been spruced up or renovated. More categorically, ARV denotes the estimated future value of the property, including all of the repairs and enhancements. To get to know your property’s ARV and use it advantageously, you will first need to figure out how to calculate it properly. Keep reading to grasp the steps to effortlessly calculate the ARV for any investment property.
Research Market Analysis
One of the top ways to calculate your property’s ARV is to implement a competitive market analysis. By seriously examining comparable properties (comps) that have recently sold, you can get a really good idea of what your property’s new market value will be. Several investors get started by scrutinizing the multiple listing service (MLS) for recently sold properties that are like your freshly done, spruced-up rental house as possible. By way of illustration, you would want to track down comps that are comparable to your property in age, size, location, construction method and style, and condition. Particularly, see at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
Calculate ARV
Once you have found three or more ideal comps, you can then calculate your property’s after-repair value (ARV). There are two most often-used methods:
- Find the average sales price of comparable properties. Particularly, if you found the three most 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 you could definitely use to estimate the likely sales price of your own single-family rental house after expansions 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 system can be a bit more factual than the first option, but it does require various other steps.
Utilize Your ARV
Once you understand your property’s ARV, you can use it in several ways. To start with, it can support you to set a more precise rental rate. By being informed on how your newly renovated property compares to others in the neighborhood, you can guarantee that you are truly maximizing your rental home’s potential. Another common way that investors conventionally use after-repair value is when actually buying investment properties.
When purchasing 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 help you grasp well where to start bidding for a property. On occasion, investors may go as high as 80% ARV, which highly raises the chance of an acceptable offer. Naturally, the higher the ARV you use to figure out your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and know-how. While a multitude of investors learns to do so on their own, it can be practical to rely on the competence of a real estate professional or property management expert. Either one can be of great help for you to locate comparable properties and see to it that your calculations display the true nature of the property, its location, and its future potential as a rental house.
Have you recently affected renovations on your investment property? Contact Real Property Management Delta and simply request your FREE rental market analysis to guarantee you stay competitive. Call us at 501-404-0674 to speak with a Batesville property manager today.
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