If you are inclined to get moving as a single-family rental home investor in Dane County, one of the most necessary terms you first need to be informed of is After Repair Value (ARV). The after-repair value of a property signifies the value of a property that has been totally fixed up or renovated. More exactly, ARV hints at the estimated future value of the property, including all of the repairs and developments. To ascertain your property’s ARV and use it appropriately, you will first need to apprehend how to calculate it precisely. Keep reading to grasp the steps to properly calculate the ARV for any investment property.
Research Market Analysis
One of the best means to calculate your property’s ARV is to execute a competitive market analysis. By actually looking at comparable properties (comps) that have recently sold, you can get a suitable idea of what your property’s new market value will be. A large number of investors get started by looking over the multiple listing service (MLS) for recently sold properties that are exactly as your recent, upgraded rental house as possible. As an illustration, you would want to look for comps that are the same way as your property in age, size, location, construction method and style, and condition. Particularly, be ready with at least three recently sold comps (i.e., sold within the last 90 days) that detail recent progress or improvements.
Once you have found three or more acceptable comps, you can then calculate your property’s after-repair value (ARV). There are two prevalent methods:
- Find the average sales price of comparable properties. Such as, if you found three ideal 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 is meant to be used to estimate the likely sales price of your own single-family rental house after advancements 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 technique can be a bit more correct and accurate than the first option, but it does require an additional number of steps.
Utilize Your ARV
Once you have figured out your property’s ARV, you can use it in several ways. Most importantly, it can support and help you to set a more exact rental rate. By being informed of how your newly renovated property compares to others in the neighborhood, you can guarantee that you are effectively increasing your rental home’s potential. Another technique that investors conventionally use after repair value is when buying investment properties.
When buying a new investment property, you may take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then let you know where to start bidding for a property. On occasion, investors may go as high as 80% ARV, which greatly increases the chance of an acceptable offer. Consequently, 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 real skill. While lots of investors learn to do so on their own, it can be practical to rely on the competence of a real estate professional or property management expert. Either one can be useful to you to locate comparable properties and make sure that your calculations reveal the true nature of the property, its location, and its inevitable potential as a rental house.
Have you recently applied for renovations on your investment property? Contact Real Property Management Greater Madison Metro and claim your FREE rental market analysis to guarantee you stay competitive. Call us at 608-310-1290 to speak with a Dane County property manager today.
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