If you are ready and actually keen to set out as a single-family rental home investor in Middleborough, one of the most critical terms you first need to find out is After Repair Value (ARV). The after-repair value of a property speaks about the value of a property that has been refinished or renovated. More particularly, ARV refers to the estimated future value of the property, including all of the repairs and developments. To grasp your property’s ARV and use it perfectly, you will first need to be knowledgeable about how to calculate it rightly. Keep reading to discover the steps to correctly calculate the ARV for any investment property.
Research Market Analysis
One of the appropriate means to calculate your property’s ARV is to completely do a competitive market analysis. By seeing and studying comparable properties (comps) that have recently sold, you can get a distinct idea of what your property’s new market value will be. Nearly all investors set out by perusing the multiple listing service (MLS) for recently sold properties that are the same as your freshly renovated rental house as possible. To cite an instance, you would want to seek out comps that are exactly like your property in age, size, location, construction method and style, and condition. Exactly what you can do is determine at least three recently sold comps (i.e., sold within the last 90 days) that detail recent enhancements or improvements.
Calculate ARV
Once you have found three or more suitable comps, you can calculate your property’s after-repair value (ARV). There are two mostly used methods:
- Find the average sales price of comparable properties. By way of example, if you found three more fitting 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 is meant to be used to estimate the likely sales price of your own single-family rental house after your 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 scheme can be a bit more exact than the first option, but it does require more extra steps.
Utilize Your ARV
Once you are aware of your property’s ARV, you can use it in several ways. First and foremost, it can be beneficial to you in setting a more precise rental rate. By taking in how your newly renovated property compares to others in the neighborhood, you can always ensure that you are boosting your rental home’s potential. Another activity that investors periodically use after repair value is every time they purchase investment properties.
When acquiring a new investment property, you can take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then be helpful to you ascertain where to start bidding for a property. In some cases, investors may go as high as 80% ARV, which absolutely boosts the chance of an acceptable offer. But, the higher the ARV you use to determine your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes a whole lot of practice and skill. While nearly all investors learn to do so on their own, it can be beneficial to rely on the abilities of a real estate professional or property management expert. Either one can be of help to you in locating comparable properties and nailing down that your calculations show the true nature of the property, its location, and its inevitable potential as a rental house.
Have you recently worked on renovations on your investment property? Contact Real Property Management Associates and ask for your FREE rental market analysis to always want you to stay competitive. Call us at 508-534-8044 to speak with a Middleborough property manager today.
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