If you are primed and ready to begin as a single-family rental home investor in Williamsburg, one of the most critical terms you first need to comprehend is After Repair Value (ARV). The after-repair value of a property connotes the value of a property that has been properly fixed up or renovated. More generally, ARV indicates the estimated future value of the property, including all of the repairs and upgrades. To glean your property’s ARV and use it rightly, you will first need to be aware of how to calculate it wisely. Keep reading to be informed of the steps to efficiently and correctly calculate the ARV for any investment property.
Research Market Analysis
One of the best ways to calculate your property’s ARV is to implement and complete a competitive market analysis. By observing comparable properties (comps) that have recently sold, you can get a very clear idea of what your property’s new market value will be. Some investors easily get started by checking into the multiple listing service (MLS) for recently sold properties that are precisely like your newly redone, renovated rental house as possible. For example, you would want to ascertain comps that correspond with your property in age, size, location, construction method and style, and condition. Particularly, check at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
Once you have found three or more applicable comps, you can then calculate your property’s after-repair value (ARV). There are two standard methods:
- Find the average sales price of comparable properties. Such as for instance, if you found the three most suitable 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 ought to be used to estimate the likely sales price of your own single-family rental house after enhancements 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 manner can be a bit more particular than the first option, but it does require several other steps.
Utilize Your ARV
Once you figure out your property’s ARV, you can use it in several ways. Primarily, it can be useful to you to set a more explicit rental rate. By learning how your newly renovated property compares to others in the neighborhood, you can safeguard that you are optimizing your rental home’s potential. Another manner that investors, again and again, use after repair value is when purchasing investment properties.
When securing 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 be of advantage to you in seeing where to start bidding for a property. Now and again, investors may go as high as 80% ARV, which inescapably amplifies the chance of an acceptable offer. But clearly, the higher the ARV you use to get your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and proficiency. While a large number of investors learn to do so on their own, it can be serviceable to rely on the know-how of a real estate professional or property management expert. Either one can contribute to you in locating comparable properties and determining that your calculations expose the true nature of the property, its location, and its ultimate potential as a rental house.
Have you recently done renovations on your investment property? Contact Real Property Management VA Peninsula and simply ask for your FREE rental market analysis to safeguard you stay competitive. Call us at 757-251-9188 to speak with a Williamsburg property manager today.
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