If you are wanting to start as a single-family rental home investor in Essex, one of the most critical terms you first need to work out is After Repair Value (ARV). The after-repair value of a property regards the value of a property that has been properly fixed up or renovated. More particularly, ARV indicates the estimated future value of the property, including all of the repairs and renovations. To distinguish your property’s ARV and use it precisely, you will first need to properly know how to calculate it exactly. Keep reading to apprehend the steps to accurately calculate the ARV for any investment property.
Research Market Analysis
One of the most suitable ways to calculate your property’s ARV is to undertake a competitive market analysis. By contemplating comparable properties (comps) that have recently sold, you can get a good idea of your property’s new market value. A whole lot of investors quickly started by going over the multiple listing service (MLS) for recently sold properties that are as much the same as your new and renovated rental house as possible. For example, you would want to carefully check out comps that are much the same as your property in age, size, location, construction method and style, and condition. Specifically, hunt for at least three recently sold comps (i.e., sold within the last 90 days) that detail recent changes or improvements.
Calculate ARV
Once you have found three or more of the best comps, you can calculate your property’s after-repair value (ARV). There are two most prevalent methods:
- Find the average sales price of comparable properties. For instance, 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 must be used to estimate the likely sales price of your own single-family rental house after the late 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 method can be a bit more exact than the first option, but it does require a host of other steps.
Utilize Your ARV
Once you get your property’s ARV, you can use it in several ways. Mainly, it can allow you to set a more approximate rental rate. By distinguishing how your newly renovated property compares to others in the neighborhood, you can always make sure that you are totally maximizing your rental home’s potential. Another way that investors often use after-repair value is when trying to acquire investment properties.
When purchasing a new investment property, you have to 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 find out where to start bidding for a property. Sometimes, investors may go as high as 80% ARV, which eminently increases the chance of an acceptable offer. But of course, the higher the ARV you use to glean your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes real practice and ability. While lots of investors learn to do so on their own, it can be totally advantageous to you to rely on the competence of a real estate professional or property management expert. Either one can assist you to locate comparable properties and always make certain that your calculations point to the true nature of the property, its location, and its inevitable potential as a rental house.
Have you recently enacted renovations on your investment property? Contact Real Property Management Sterling and put forth a request for your FREE rental market analysis to always make sure you stay competitive. Call us at 802-861-6468 to speak with an Essex property manager today.
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