If you are ready and eager to swing into action as a single-family rental home investor in Lynchburg, one of the most salient terms you first need to be acquainted with is After Repair Value (ARV). The after-repair value of a property relates to the value of a property that has been made better or renovated. More definitely, ARV speaks about the estimated future value of the property, including all of the repairs and refinements. To grasp well your property’s ARV and use it to your advantage, you will first need to get to know how to calculate it accordingly. Keep reading to assimilate the steps to appropriately calculate the ARV for any investment property.
Research Market Analysis
One of the most effective ways to calculate your property’s ARV is to execute a competitive market analysis. By taking into consideration comparable properties (comps) that have recently sold, you can get a helpful idea of what your property’s new market value will be. So many investors hit the ground running by exploring the multiple listing service (MLS) for recently sold properties that are the same as your recently renovated rental house as possible. To cite an instance, you would want to know comps that are resembling your property in age, size, location, construction method and style, and condition. More clearly, search for 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 really good comps, you can then calculate your property’s after-repair value (ARV). There are two most frequently used methods:
- Find the average sales price of comparable properties. As a sample, if you found three great 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 would have to be used to estimate the likely sales price of your own single-family rental house after the latest renovations 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 means it can be a bit more factual than the first option, but it does require a few additional steps.
Utilize Your ARV
Once you learn of your property’s ARV, you can use it in several ways. First up, it can be helpful to you to set a more specific rental rate. By really understanding how your newly renovated property compares to others in the neighborhood, you can see to it that you are boosting your rental home’s potential. Another way that investors typically use after-repair value is when procuring investment properties.
When acquiring a new investment property, you simply 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 help to you to take into account where to start bidding for a property. Once in a while, investors may go as high as 80% ARV, which vastly increases the chance of an acceptable offer. Obviously, 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 ability. While so many investors learn to do so on their own, it can be good to rely on the knowledge and experience of a real estate professional or property management expert. Either one can really help you to locate comparable properties and totally make certain that your calculations illustrate the true nature of the property, its location, and its possible future as a rental house.
Have you recently completed renovations on your investment property? Contact Real Property Management Cairn and freely ask for your FREE rental market analysis to see to it you stay competitive. Call us at 434-215-3028 to speak with a Lynchburg property manager today.
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