If you’re excited to get started as a single-family rental home investor in Mint Hill, you should know the most significant term in this field, which is After Repair Value (ARV). The property after repair value relates to the value of a property that has been fixed up or renovated. More specifically, ARV indicates the estimated future value of the property, including all of the repairs and improvements. To figure out your property’s ARV and use it correctly, you will first need to know how to calculate it accurately.
One of the best ways to calculate your property’s after repair value is to do a competitive market analysis. By checking comparable properties (comps) that have recently sold, you can have a good idea of what your property’s new market value will be. A lot of investors always start by searching the multiple listing service (MLS) for newly owned properties that are similar to your new, improved rental house as possible. For example, you would want to find comps that are very similar to your property in age, size, location, construction method and style, and condition. To be exact, search for at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
When you have found three or more decent comps, you would then be able to calculate your property’s after repair value. The best approach to do that is to find the average sales price of the corresponding properties. For instance, in case you found three good comps, add their sold prices together, then divide by three, you would have the average price. Then this is the amount of your property’s after repair value (ARV), a number that should be used to estimate the likely sales price of your own single-family rental house after improvements and repairs.
Another technique to calculate your property’s after repair value is to figure out the average price per square foot of comparable properties. Divide the overall sale price by your comps average square footage. With an average price per square foot, you can then multiply that price by the number of square feet in your rental property. This procedure may be much more precise than the first option, but this one requires a few extra steps.
Once you know your property’s ARV, you can use it in several ways. To start with, it can help you to set a more accurate rental rate. By seeing how your recently restored property compares to others in the neighborhood, you can guarantee that you are maximizing your rental home’s potential. Some other ways that investors usually utilize after repair value is when buying investment properties.
If you purchase a new rental property, you might wish to take 70% of the property’s after repair value and subtract the costs of repairs and improvements. The resulting price of the deal will then allow you to know where to start bidding for a property. At times, investors may go as high as 80% ARV, which significantly increases the chance of an acceptable offer. Probably, the higher the ARV you use to determine your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after repair value takes practice and skill. Although many investors learn to do so on their own, others may seek the assistance of a real estate professional or property management expert. Either one will help you locate comparable properties and ensure that your calculations reflect the true nature of the property, its location, and its future potential as a rental house.
Have you recently completed renovations on your investment property? No matter what your answer is, Real Property Management Charlotte Metro will always here to guide you. You can request your FREE rental market analysis to ensure you stay competitive. Call us at 704-919-1344 to speak with a Mint Hill property manager today.
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