If you are predisposed and eager to get rolling as a single-family rental home investor in Morristown, one of the most critical terms you first need to apprehend is After Repair Value (ARV). The after-repair value of a property pertains to the value of a property that has been rehabilitated or renovated. More thoroughly, ARV relates to the estimated future value of the property, including all of the recent repairs and improvements. To easily know your property’s ARV and use it suitably, you will first need to consider how to calculate it correctly. Keep reading to perceive the steps to correctly calculate the ARV for any investment property.
Research Market Analysis
One of the optimum solutions to calculate your property’s ARV is to execute a competitive market analysis. By examining comparable properties (comps) that have recently sold, you can get a pretty good idea of what your property’s new market value will be. Particular investors get easily started by scrutinizing the multiple listing service (MLS) for recently sold properties that are quite similar to your recently done, rehabilitated rental house as possible. For illustration, you would want to secure comps that are comparative with your property in age, size, location, construction method and style, and condition. Primarily, track down at least three recently sold comps (i.e., sold within the last 90 days) that detail recent renovations or improvements.
Calculate ARV
Once you have found three or satisfactory comps, you can then calculate your property’s after-repair value (ARV). There are two regular methods:
- Find the average sales price of comparable properties. Like for example, if you found three great 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 you can use to estimate the likely sales price of your own single-family rental house after refinements 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 approach can be a bit more detailed and accurate than the first option, but it does require a couple of extra steps.
Utilize Your ARV
Once you get to know your property’s ARV, you can use it in several ways. Definitely, it can be of great use to you to set a more exact rental rate. By taking into consideration how your newly renovated property compares to others in the neighborhood, you can see to it that you are raising your rental home’s potential. Another approach that investors frequently use after repairing value is when getting investment properties.
When purchasing 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 effectively used to determine where to start bidding for a property. From time to time, investors may go as high as 80% ARV, which basically multiplies the chance of an acceptable offer. But remember, 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 practice and proper skill. While several investors learn to do so on their own, it can be useful to rely on the awareness of a real estate professional or property management expert. Either one can let you locate comparable properties and always ensure that your calculations exhibit the true nature of the property, its location, and its future contribution as a rental house.
Have you recently executed renovations on your investment property? Contact Real Property Management NJ Elite and liberally ask for your FREE rental market analysis to check you stay competitive. Call us at 908-955-7487 to speak with a Morristown property manager today.
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