If you are ready to begin as a single-family rental home investor in Garden City, 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 is related to the value of a property that has been improved or renovated. More precisely, ARV pertains to the estimated future value of the property, including all of the repairs and transformations. To identify your property’s ARV and use it aptly, you will first need to realize how to calculate it adequately. Keep reading to consider the steps to calculate the ARV for any investment property perfectly.
Research Market Analysis
One of the best practices to calculate your property’s ARV is to work on a competitive market analysis. By checking out comparable properties (comps) that have recently sold, you can get an excellent idea of what your property’s new market value will be. Countless investors simply start by going over the multiple listing service (MLS) for recently sold properties that are identical to your newly renovated rental house as possible. Such as for instance, you would want to get comps that are nearly the same as your property in age, size, location, construction method and style, and condition. To be precise, locate at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
Calculate ARV
Once you have found three or more great comps, you can calculate your property’s after-repair value (ARV). There are two traditional methods:
- Find the average sales price of comparable properties. For example, if you found three fine 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 could be used to estimate the likely sales price of your own single-family rental house after recent upgrades 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 routine can be a bit more thorough and accurate than the first option, but it does require many additional steps.
Utilize Your ARV
Once you really know your property’s ARV, you can use it in several ways. Principally, it can get you to set a less erroneous rental rate. By apprehending how your newly renovated property compares to others in the neighborhood, you can actually make sure that you are positively increasing your rental home’s potential. Another way that investors normally use after-repair value is when procuring investment properties.
When purchasing a new investment property, you may want to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then really help you detect where to start bidding for a property. Sometimes, investors may go as high as 80% ARV, which certainly increases the chance of an acceptable offer. But take note, the higher the ARV you use to comprehend your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and expertise. While several investors learn to do so on their own, it can be good to rely on the capability of a real estate professional or property management expert. Either one can be of assistance to you to locate comparable properties and guarantee that your calculations reflect the true nature of the property, its location, and its potential future as a rental house.
Have you recently done renovations on your investment property? Contact Real Property Management Landmark and don’t be shy to request your FREE rental market analysis to see to it you stay competitive. Call us at 516-522-2859 to speak with a Garden City property manager today.
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