In case you’re eager to begin as a single-family rental home investor in Chowchilla, you should know the primary critical words right now, which is After Repair Value (ARV). The property after repair value indicates the value of a property that has been fixed up or renovated. More specifically, ARV relates to the estimated future value of the property, including all of the repairs and improvements. To figure out your property’s ARV and to 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 searching for 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 financial specialists consistently start by searching the multiple listing service (MLS) for recently purchased properties that are similar to your new, improved rental house as could reasonably be expected. For example, you would need to find comps that are very similar to your property in age, size, location, construction method and style, and condition. To be precise, look for 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 decent comps, you would have the option to calculate your property’s after repair value. The best way to do that is to find the average sales price of the corresponding properties. For example, 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 total 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 procedure to calculate your property’s after repair value is to figure out the average price per square foot of your 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 method might be substantially more precise than the first option, yet, this one requires additional effort.
When you know your property’s ARV, you can use it in several ways. To begin with, it can help you to set a more accurate rental rate. By observing how your recently reestablished property compares to others in the neighborhood, you can ensure that you are maximizing your rental home’s potential. Some other technique that investors usually use after repair value is when buying investment properties.
If you buy a new rental property, you may wish to take 70% of the property’s after repair value and subtract the costs of repairs and improvements. The resulting cost of the deal will then permit you to know where to start bidding for a property. Sometimes, investors may go as high as 80% ARV, which significantly increases the chance of an acceptable offer. Likely, the higher the ARV you use to determine your offer price, the higher the risk for your profit margins after the truth.
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 a property management expert. It is possible that 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? Regardless of what your answer is, Real Property Management Valley Wide will always be here to help you. You can also claim your FREE rental market analysis to ensure you stay competitive. Contact us at 209-722-7761 to talk with a Chowchilla property manager today.
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