If you are prepared to be a single-family rental home investor in Lakeland, one of the most important terms you first need to know is After Repair Value (ARV). The property after repair value refers to the value of a property that has been fixed up or renovated. More specifically, ARV refers to the estimated future value of the property, including all of the repairs and improvements. To figure out your property’s ARV and 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 comparing comparable properties (comps) that have recently sold, you will have a good idea of what your property’s new market value will be. The first step of several investors is searching the multiple listing service (MLS) to check those previously bought properties that are similar to your new, improved rental house. For instance, you would like to find comps that are very similar to your property in age, size, location, construction method and style, and condition. Search for at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
When you have found three or more decent comps, you would then calculate your property’s after repair value. The primary method to do this is to find the average sales price of the equivalent features. Let’s say you already found those three good comps, add their sold prices together, then divide by three, you would have the average price. This amount will be 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 accurate technique that you use 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 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 computation may be a bit more precise than the first option, but if you do it, it will require a few extra steps.
Once you already understand your property’s ARV, you can use it in several ways. Initially, it can help you to set a more accurate rental rate. Through knowing how your recently remodeled property compares to others in the neighborhood, you will make certain that you are maximizing your rental home’s potential. An additional method that investors frequently use after repair value is when buying investment properties.
When buying another investment in real estate, you might need to take 70% of the property’s after repair value and subtract the costs of repairs and improvements. The subsequent offer cost would be able to help you know where to start bidding for a property. For some instances, investors may go as high as 80% ARV, which significantly increases the chance of an acceptable offer. Obviously, the higher the ARV you use to determine your offer price, the higher the risk for your profit margins later.
Calculating an accurate after repair value takes practice and skill. While many investors learn to do so on their own, anyone else may seek the assistance of a real estate professional or property management expert. One can assist finding 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? Contact Real Property Management Lakeside and claim your FREE rental market analysis to guarantee you remain competitive. Call us at 863-302-8752 to talk with a Lakeland property manager today.
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