If you’re prepared to begin your adventure as a single-family rental home investor in Mint Hill, one of the main terms you first need to know is After Repair Value (ARV). The after-repair value of a property applies to the value of a property that has been fixed up or renovated. More specifically, ARV refers to the estimated future value of the property, involving each one of these repairs and improvements. To verify your property’s ARV to use it right, you should first know how to calculate it accurately. Keep reading to learn how to do so.
Start With a Market Analysis
A competitive market analysis is one of the best ways to calculate your property’s ARV. By checking out comparable properties (comps) that have recently sold, you can figure out a good idea of your property’s new market value. Lots of investors start by searching the multiple listing service (MLS) for recently sold properties that are as much like your new, improved rental house as possible. For instance, you’d want to look for comps close to your property in age, size, location, construction method and style, and condition. Specifically, you should look for at least three recently sold comps (i.e., sold within the last 90 days) that show recent upgrades or improvements.
Calculating ARV
When you’ve found three or more decent comps, you will then be able to calculate your property’s after-repair value (ARV). There are two standard methods:
- Compute the average sales price of comparable properties. For example, if you found three good comps, add their sold prices together, divide by three, and then you would have the average price. This number is your property after-repair value (ARV), which should 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 method can be more accurate than the first option but involves a few extra steps.
Using Your ARV
As soon as you understand your property’s ARV, you may be able to use it in several ways. First, it can help you to set a more correct rental rate. By understanding how your newly renovated property compares to others in the neighborhood, you can maximize your rental home’s potential. Another way that investors often use after-repair value is when acquiring investment properties.
When purchasing a new Mint Hill investment property, you may want to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can help you know where to start bidding for a property. In some instances, investors may go as high as 80% ARV, significantly increasing the chance of a suitable offer. Obviously, the higher the ARV you use to decide your offer price, the higher the risk for your profit margins afterward.
Determining an accurate after-repair value involves training and competence. While many investors learn to do so on their own, it can be helpful to rely on the expertise of a real estate professional or property management expert. Either one can 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? Contact Real Property Management Charlotte Metro and request a 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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