If you are disposed to get started as a single-family rental home investor in Lubbock, one of the most essential terms you first need to take in is After Repair Value (ARV). The after-repair value of property concerns the value of a property that has been repaired or renovated. More correctly, ARV cites the estimated future value of the property, including all of the repairs and corrections. To actually know your property’s ARV and use it excellently, you will first need to realize and know how to calculate it fairly well. Keep reading to be knowledgeable of the steps to perfectly calculate the ARV for any investment property.
Research Market Analysis
One of the appropriate ways to calculate your property’s ARV is to complete a competitive market analysis. By viewing comparable properties (comps) that have recently sold, you can get a fairly accurate idea of what your property’s new market value will be. A number of investors get going and started by checking and probing the multiple listing service (MLS) for recently sold properties that are as much the same as your latest, repaired rental house as possible. As an example, you would want to locate comps that are much the same as your property in age, size, location, construction method and style, and condition. Also, find and be prepared with at least three recently sold comps (i.e., sold within the last 90 days) that detail recent gains or improvements.
Calculate ARV
Once you have found three or more acceptable comps, you can then calculate your property’s after-repair value (ARV). There are two conventional methods:
- Find the average sales price of comparable properties. For a case in point, if you found three appropriate 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 must be used to estimate the likely sales price of your own single-family rental house after enhancements 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 process can be a bit more accurate than the first option, but it does require further steps.
Utilize Your ARV
Once you are familiar with your property’s ARV, you can use it in several ways. Specifically, it can really help you to set a more detailed rental rate. By grasping well how your newly renovated property compares to others in the neighborhood, you can warrant that you are multiplying your rental home’s potential. Another method that investors naturally use after repairing value is when buying their investment properties.
When procuring a new investment property, you may 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 glean where to start bidding for a property. At times, investors may go as high as 80% ARV, which effectively escalates 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 real skill. While a multitude of investors learns to do so on their own, it can be beneficial to rely on the skill of a real estate professional or property management expert. Either one can be of benefit to you to locate comparable properties and make sure that your calculations indicate the true nature of the property, its location, and its future possibilities as a rental house.
Have you recently put into effect renovations on your investment property? Contact Real Property Management Services and ask for your FREE rental market analysis to warrant you stay competitive. Call us at 806-853-6546 to speak with a Lubbock property manager today.
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