If you are prepared to start off as a single-family rental home investor in Mount Pleasant, one of the most essential terms you first need to glean is After Repair Value (ARV). The after-repair value of a property speaks about the value of a property that has been completely fixed up or renovated. More specifically, ARV is about the estimated future value of the property, including all of the repairs and amendments. To actually your property’s ARV and use it properly, you will first need to identify how to calculate it correctly. Keep reading to ascertain the steps to perfectly calculate the ARV for any investment property.
Research Market Analysis
One of the reliable methods to calculate your property’s ARV is to accomplish a competitive market analysis. By observing comparable properties (comps) that have recently sold, you can get an excellent idea of what your property’s new market value will be. All investors start off by researching the multiple listing service (MLS) for recently sold properties that are almost identical to your newly done, resurfaced rental house as possible. As an illustration, you would want to watch for comps that are exactly like your property in age, size, location, construction method and style, and condition. To be sure, get at least three recently sold comps (i.e., sold within the last 90 days) that detail recent expansions or improvements.
Calculate ARV
Once you have found three or more applicable comps, you can then calculate your property’s after-repair value (ARV). There are two usual methods:
- Find the average sales price of comparable properties. Such as, if you found three perfect comps, add 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 could use to estimate the likely sales price of your own single-family rental house after enhancements 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 process can be a bit more specific than the first option, but it does require more other steps.
Utilize Your ARV
Once you take into consideration your property’s ARV, you can use it in several ways. First thing, it can foster you to set a more particular rental rate. By having an idea of how your newly renovated property compares to others in the neighborhood, you can completely make sure that you are escalating your rental home’s potential. Another methodology that investors invariably use after repairing value is when buying out investment properties.
When paying for a new investment property, you may have 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 apprehend where to start bidding for a property. Uncommonly, investors may go as high as 80% ARV, which unquestionably develops the chance of an acceptable offer. Unmistakably, the higher the ARV you use to get to know your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and adeptness. While all investors learn to do so on their own, it can be applicable to rely on the competence of a real estate professional or property management expert. Either one can aid you to locate comparable properties and establish that your calculations expose the true nature of the property, its location, and its future capacity as a rental house.
Have you recently conducted renovations on your investment property? Contact Real Property Management Instant Equity and don’t hesitate to ask us for your FREE rental market analysis to completely make sure you stay competitive. Call us at 843-898-5743 to speak with a Mount Pleasant property manager today.
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