If you are ready and eager to kick off as a single-family rental home investor in Bryan-College Station, one of the most crucial terms you first need to actually know is After Repair Value (ARV). The after-repair value of a property pertains to the value of a property that has been remodeled or renovated. More specifically, ARV signifies the estimated future value of the property, including all of the repairs and upgrades. To very easily know your property’s ARV and use it accurately, you will first need to grasp well how to calculate it excellently. Keep reading to comprehend the steps to excellently calculate the ARV for any investment property.
Research Market Analysis
One of the efficient ways to calculate your property’s ARV is to perform a competitive market analysis. By considering comparable properties (comps) that have recently sold, you can get a very good idea of what your property’s new market value will be. Most investors easily kick off by investigating the multiple listing service (MLS) for recently sold properties that are exactly like your newly done, remodeled rental house as possible. By way of illustration, you would want to get a hold of comps that are almost identical to your property in age, size, location, construction method and style, and condition. Particularly, locate at least three recently sold comps (i.e., sold within the last 90 days) that detail recent transformations or improvements.
Once you have found three or more appropriate comps, you can then calculate your property’s after-repair value (ARV). There are two prevailing methods:
- Find the average sales price of comparable properties. Particularly, if you found three really good 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 is helpful to 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 practice can be a bit more explicit than the first option, but it does require certain additional steps.
Utilize Your ARV
Once you work out your property’s ARV, you can use it in several ways. First of all, it can contribute to you setting a more really accurate rental rate. By considering how your newly renovated property compares to others in the neighborhood, you can nail down that you are magnifying your rental home’s potential. Another practice that investors ordinarily use after repair value is when acquiring investment properties.
When buying a new investment property, you may be obligated to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then effectively help you in identifying where to start bidding for a property. Every once in a while, investors may go as high as 80% ARV, which certainly raises the chance of an acceptable offer. It needs to be said that the higher the ARV you use to find out your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and skillful ability. While some investors learn to do so on their own, it can be valuable to rely on the competency of a real estate professional or property management expert. Either one can enable you to locate comparable properties and always warrant that your calculations signify the true nature of the property, its location, and its future ability as a rental house.
Have you recently done renovations on your investment property? Contact Real Property Management Apex and call for your FREE rental market analysis to ensure you stay competitive. Call us at 254-732-1599 to speak with a Bryan-College Station property manager today.
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