If you are keen on starting as a single-family rental home investor in Pleasanton, one of the most critical terms you first need to assimilate is After Repair Value (ARV). The after-repair value of a property indicates the value of a property that has been improved or renovated. More explicitly, ARV connotes the estimated future value of the property, including all of the repairs and upgrades. To learn of your property’s ARV and use it well, you will first need to properly know how to calculate it exactly. Keep reading to know the proper steps to thoroughly calculate the ARV for any investment property.
Research Market Analysis
One of the best ways to calculate your property’s ARV is to execute a competitive market analysis. By inspecting comparable properties (comps) that have recently sold, you can get a really good idea of what your property’s new market value will be. A lot of investors initiate this process by researching the multiple listing service (MLS) for recently sold properties that are very much like your updated, fixed-up rental house as possible. For instance, you would want to identify comps that are pretty much the same as your property in age, size, location, construction method and style, and condition. Specifically, watch for and compare at least three recently sold comps (i.e., sold within the last 90 days) that detail recent refinements or improvements.
Calculate ARV
Once you have found three or more proper comps, you can then calculate your property’s after-repair value (ARV). There are two very common methods:
- Find the average sales price of comparable properties. Specifically, if you found three appropriate 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 is expected to be used to estimate the likely sales price of your own single-family rental house after any 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 operation can be a bit more specific and accurate than the first option, but it does require several more steps.
Utilize Your ARV
Once you are aware of your property’s ARV, you can use it in several ways. Mainly, it can benefit you to set a more correct rental rate. By ascertaining how your newly renovated property compares to others in the neighborhood, you can secure that you are optimizing your rental home’s potential. Another operation that investors most often use after repair value is when purchasing investment properties.
When acquiring a new investment property, you may try to 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 properly know where to start bidding for a property. Every so often, investors may go as high as 80% ARV, which consequently optimizes the chance of an acceptable offer. It goes without saying, the higher the ARV you use to figure out your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and expertise. While a number of investors learn to do so on their own, it can be effective to rely on the proficiency of a real estate professional or property management expert. Either one can be really helpful to you to locate comparable properties and make certain that your calculations manifest the true nature of the property, its location, and its future potential as a rental house.
Have you recently renovated your investment property? Contact Real Property Management Masters and just ask for your FREE rental market analysis to secure your stay competitive. Call us at 510-398-8704 to speak with a Pleasanton property manager today.
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