If you are keen to begin as a single-family rental home investor in Fresno, one of the most crucial terms you first need to consider and understand is After Repair Value (ARV). The after-repair value of a property points to the value of a property that has been upgraded or renovated. More distinctively, ARV alludes to the estimated future value of the property, including all of the repairs and renovations. To determine your property’s ARV and use it advantageously, you will first need to discover how to calculate it appropriately. Keep reading to really understand the steps to accurately calculate the ARV for any investment property.
Research Market Analysis
One of the efficient ways to calculate your property’s ARV is to fulfill a competitive market analysis. By taking into account comparable properties (comps) that have recently sold, you can get a very clear idea of what your property’s new market value will be. Many investors simply begin by looking over the multiple listing service (MLS) for recently sold properties that are as identical to your newly updated rental house as possible. Such as, for example, you would want to search for comps that are close to your property in age, size, location, construction method and style, and condition. More particularly, find at least three recently sold comps (i.e., sold within the last 90 days) that detail recent renovations or improvements.
Calculate ARV
Once you have found three or more satisfactory comps, you can then calculate your property’s after-repair value (ARV). There are two ordinary methods:
- Find the average sales price of comparable properties. As an illustration, if you found three preferable comps, added 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 you can then use to estimate the likely sales price of your own single-family rental house after renovations 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 action can be a bit more detailed and accurate than the first option, but it does require a bunch of other steps.
Utilize Your ARV
Once you actually know your property’s ARV, you can use it in several ways. Firstly, it can help you set a more precise rental rate. By grasping how your newly renovated property compares to others in the neighborhood, you can make certain that you are growing your rental home’s potential. One other way that investors generally use after-repair value is when obtaining investment properties.
When obtaining a new investment property, you may consider taking 70% of the property’s after-repair value and subtracting the costs of repairs and improvements. The resulting offer price can then give you the chance to work out where to start bidding for a property. A few times, investors may go as high as 80% ARV, which consequently increases the chance of an acceptable offer. But remember, the higher the ARV you use to take in 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 various investors learn to do so on their own, it can be profitable to rely on the competency of a real estate professional or property management expert. Either one can efficiently help you to locate comparable properties and make it a point that your calculations denote the true nature of the property, its location, and its likely future as a rental house.
Have you recently performed renovations on your investment property? Contact Real Property Management Platinum and claim your FREE rental market analysis to make certain you stay competitive. Call us at 559-425-8550 to speak with a Fresno property manager today.
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