If you are ready and looking to begin as a single-family rental home investor in West Hills, one of the most beneficial terms you first need to truly grasp is After Repair Value (ARV). The after-repair value of a property points to the value of a property that has been refurbished or renovated. More particularly, ARV connotes the estimated future value of the property, including all of the repairs and renovations. To work out your property’s ARV and use it well, you will first need to ascertain how to calculate it properly. Keep reading to find out the steps to adequately calculate the ARV for any investment property.
Research Market Analysis
One of the proven practices to calculate your property’s ARV is to execute a competitive market analysis. By contemplating comparable properties (comps) that have recently sold, you can get a very clear idea of what your property’s new market value will be. Most investors simply start by checking up on the multiple listing service (MLS) for recently sold properties that are much like your newly renovated rental house as possible. For example, you would want to put together comps that are relatively the same as your property in age, size, location, construction method and style, and condition. Particularly, dig up 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 best comps, you can then calculate your property’s after-repair value (ARV). There are two usual methods:
- Find the average sales price of comparable properties. For instance, if you found three very similar 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 should also be used to estimate the likely sales price of your own single-family rental house after improvements 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 step can be a bit more accurate than the first option, but it does require many more steps.
Utilize Your ARV
Once you realize your property’s ARV, you can use it in several ways. First of all, it can very easily help you to set a more appropriate rental rate. By understanding how your newly renovated property compares to others in the neighborhood, you can totally ensure that you are enhancing your rental home’s potential. Another course of action that investors typically use after repair value is when trying to purchase investment properties.
When investing in a new investment property, you may have to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then easily help you determine where to start bidding for a property. Oftentimes, investors may go as high as 80% ARV, which vitally doubles the chance of an acceptable offer. Needless to say, the higher the ARV you use to find your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes lots of practice and competence. While the majority of investors learn to do so on their own, it can be beneficial to rely on the experience of a real estate professional or property management expert. Either one can efficiently help you locate comparable properties and secure that your calculations point to the true nature of the property, its location, and its likely possibilities as a rental house.
Have you recently undertaken renovations on your investment property? Contact Real Property Management West San Fernando Valley and make a request for your FREE rental market analysis to completely ensure you stay competitive. Call us at 818-727-0100 to speak with a West Hills property manager today.
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