How To Calculate The ARV (After Repair Value) Of A Residential Property
Updated: Feb 26, 2019
When it comes to investing in real estate, understanding the ARV (After Repair Value) may be the most important figure in your calculations to help forecast your specific profit on a project. Real estate investing, specifically flipping houses involves several different systems and departments to ensure a profitable house flip.
The majority of projects that you will take on with be purchased in rough condition and will typically require some type of repair - whether that be just cosmetic or advanced mechanical's.
As a house flipper, our main goal is to recognize potential, evaluate the property, add value through strategic repairs and sell the property to meet your minimum profit requirements.
One of the main components of this process is being able to accurately and efficiently evaluate a property and it's profit potential. This process starts with understanding the properties ARV or after repair value.
Understanding and figuring out the ARV (after repair value) of a property is discovered through due diligence, understanding your farm area and the numbers that this number consists of.
So, with that being said, let's figure out how how we calculate the ARV (after repair value) of a residential property.
Determining The ARV (After Repair Value) Of A Residential Property
One of the key's to not losing money and mitigating your risk when investing in real estate is your ability to accurately project the after repair value of the property in question.
The ARV or after repair value is the price that you estimate the property will be worth after you make the necessary repairs.
The first step in determining the ARV of a residential property you are evaluating is to analyze the comparables or "comps" in your local farm area.
1) Comparable Market Analysis - is an analysis of nearby recently sold, pending sales and for sale homes (comparables) that allow you to forecast a price range on a subject property. That price range helps determine the offer price or listing price of a home.
These comparable properties will give you a good indication of what you will be able to sell the property for.
Now there are a couple ways that real estate investors go about creating comparable market analysis'.
Real Estate Agent - If you are currently working with or considering working with a real estate agent, they will typically be able to provide you a comparable market analysis of the subject property in question. This is because real estate agents have access to the MLS (Multiple Listings Service) which portrays accurate sale, for sale and pending sales information in your farm area.
MLS / Flip Comp - As we spoke of before, the MLS has the most accurate data on the market to help evaluate a properties ARV. The MLS is only accessible if you have a real estate license in your area. With that being said, there is a new tool out there called "Flip Comp" that allows you to pay $299 a month for complete access to the MLS, evaluation tools and detailed insights into your farm area.
Zillow / Trulia / Realtor - If you can not find access to the above mentioned tools, we can always fall back on third party websites such as Trulia, Zillow & Realtor. These third party websites will also allow you to filter specific farm areas to help you evaluate the ARV of a property. The only issue with these third party websites is that accurate information is not always placed on these websites and the last thing we want to do is create a Comparable Market Analysis with the wrong numbers
County Assessors Website - That last place that you can find information on the resale value of properties is with your county assessors office. We recommend that you use this tool to check all of the comparables that you have gathered from other websites. If you do have to use third party tools such as Zillow, Trulia & Realtor we highly recommend that you verify all of the resale numbers with your county assessors website.
How To Put Together An Accurate Comparable Market Analysis
If you are going to take on the task of producing your own comparable market analysis, we need to go over what areas we need to evaluate and pay special attention to:
Homes sold in the last 90-180 days (depending on your market)
Property Size (square footage)
Properties in Same City
Properties in Similar Neighborhood
Properties within .5 - 1 mile Of Investment Property
Interior Property Finishes
Extra Amenities (Fireplaces, Garages, Porches/Decks, Pools
Market Conditions & Trends
If you are interested in a free Comparable Market Analysis tool that we use to help evaluate and track our comps, click the link below.
Wrapping Up | How To Calculate The ARV (After Repair Value) Of A Property
As a real estate investor, you are in control of your own destiny and you will be the final decision maker when it comes to pulling the trigger on an investment or letting it pass. With that being said, we recommend that you have a logical contractor and real estate agent on your team to help assist you with the ARV of the subject property in question. Even if you feel that you are a seasoned investor, we still recommend that you double check all of your numbers with your team just to verify that your projected profit is correct.
Now everyone's farm area and market is different, this means that you need to understand that some neighborhoods differ in price from street to street and some areas call for higher end finishes than others (dont over improve a property - discussion for another blog post) so get out there and drive your farm area and understand what properties are selling for.
If you have any questions about calculating the ARV of your property, please leave a comment below and we would be glad to answer any questions you may have. Also, if you guys are interested we are offering a free house flipping evaluator. This will help you calculate all of your costs on a job, project profit and determine you maximum allowable offer. (just shoot us an email - firstname.lastname@example.org)
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