If you are prepared to take action and start as a single-family rental home investor in Garland, one of the most principal terms you first need to be familiar with is After Repair Value (ARV). The after-repair value of a property signifies the value of a property that has been enhanced or renovated. More concretely, ARV pertains to the estimated future value of the property, including all of the repairs and progresses. To really understand your property’s ARV and use it to well for your benefit, you will first need to work out how to calculate it correctly. Keep reading to be informed of the steps to correctly calculate the ARV for any investment property.
Research Market Analysis
One of the best ways possible to calculate your property’s ARV is to perform a competitive market analysis. By regarding comparable properties (comps) that have recently sold, you can get a very good idea of what your property’s new market value will be. Tons of investors get started by delving into the multiple listing service (MLS) for recently sold properties that are closely similar to your newly updated, enhanced rental house as possible. By way of example, you would want to scrutinize comps that are akin to your property in age, size, location, construction method and style, and condition. To be exact, seek at least three recently sold comps (i.e., sold within the last 90 days) that detail recent developments or improvements.
Once you have found three or more real comps, you can calculate your property’s after-repair value (ARV). There are two typically used methods:
- Find the average sales price of comparable properties. For instance, if you found three better comps, added 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 is essential to be used to estimate the likely sales price of your own single-family rental house after upgrades 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 approach can be a bit more detailed and accurate than the first option, but it does require a couple of extra steps.
Utilize Your ARV
Once you ascertain your property’s ARV, you can use it in several ways. Firstly, it can be useful to you to set a more absolute and accurate rental rate. By learning how your newly renovated property compares to others in the neighborhood, you can safeguard that you are truly optimizing your rental home’s potential. Another manner that investors often use after repair value is when purchasing investment properties.
When securing a new investment property, you may want 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 advantage to you in taking into consideration where to start bidding for a property. Now and again, investors may go as high as 80% ARV, which heavily boosts the chance of an acceptable offer. In fact, the higher the ARV you use to get to your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and real skill. While tons of investors learn to do so on their own, it can be beneficial to rely on the know-how of a real estate professional or property management expert. Either one can efficiently help you locate comparable properties and determine that your calculations present the true nature of the property, its location, and its likely future as a rental house.
Have you recently done renovations on your investment property? Contact Real Property Management Focus and simply make a request for your FREE rental market analysis to safeguard your stay competitive. Call us at 773-443-7439 to speak with a Garland property manager today.
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