If you are eager and ready to get started as a single-family rental home investor in Winston-Salem, one of the most vital terms you first need to recognize is After Repair Value (ARV). The after-repair value of a property hints at the value of a property that has been remodeled or renovated. More explicitly, ARV often refers to the estimated future value of the property, including all of the newly done repairs and renovations. To get an idea of your property’s ARV and use it productively, you will first need to be acquainted with how to calculate it thoroughly. Keep reading to glean the steps to thoroughly calculate the ARV for any investment property.
Research Market Analysis
One of the best methods to calculate your property’s ARV is to execute a competitive market analysis. By carefully considering comparable properties (comps) that have recently sold, you can get the right idea of what your property’s new market value will be. Most investors begin by examining the multiple listing service (MLS) for recently sold properties that are basically as much like your currently done, remodeled rental house as possible. For example, you would want to locate comps that are actually the same as, your property in age, size, location, construction method and style, and condition. To be precise, secure at least three recently sold comps (i.e., sold within the last 90 days) that detail recent transformations or improvements.
Calculate ARV
Once you have found three or more appropriate comps, you can then calculate your property’s after-repair value (ARV). There are two common methods typically used:
- Find the average sales price of comparable properties. Such as for instance, if you found three ideal comps, added their sold prices together, then divided by three, you would have the average price. This number is your property’s after-repair value (ARV), a number that you could actually utilize to estimate the likely sales price of your own single-family rental house after current 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 operation can be a bit more explicit than the first option, but it does require several more steps.
Utilize Your ARV
Once you distinguish your property’s ARV, you can use it in several ways. Essentially, it can aid you to set a more accurate rental rate. By ascertaining how your newly renovated property compares to others in the neighborhood, you can make it a point that you are optimizing your rental home’s potential. Another common way that investors customarily use after-repair value is when obtaining investment properties.
When trying to procure a new investment property, you may need to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then assist you to be aware of where to start bidding for a property. Occasionally, investors may go as high as 80% ARV, which notably amplifies the chance of an acceptable offer. Needless to say, the higher the ARV you use to determine your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes actual practice and skill. While various investors learn to do so on their own, it can be advantageous to rely on the ability of a real estate professional or property management expert. Either one can support you to locate comparable properties and make certain that your calculations signify the true nature of the property, its location, and its future potential and opportunities as a rental house.
Have you recently fulfilled renovations on your investment property? Contact Real Property Management of the Triad and call for your FREE rental market analysis to make it a point you stay competitive. Call us at 336-355-6666 to speak with a Winston-Salem property manager today.
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