If you are fired up and eager to start as a single-family rental home investor in Palmetto Bay, one of the most critical terms you first need to get to know is After Repair Value (ARV). The after-repair value of a property signifies the value of a property that has been beautifully fixed up or renovated. More particularly, ARV talks of the estimated future value of the property, including all of the repairs and renovations. To discover your property’s ARV and use it exactly, you will first need to assimilate how to calculate it the proper way. Keep reading to know the steps to properly calculate the ARV for any investment property.
Research Market Analysis
One of the suitable ways to calculate your property’s ARV is to run a competitive market analysis. By distinguishing and studying comparable properties (comps) that have recently sold, you can get a clear picture of your property’s new market value. Lots of investors get started by actually checking out the multiple listing service (MLS) for recently sold properties that are exactly the same as your restored, renovated rental house as possible. Such as for instance, you would want to dig up comps that are the same way as your property in age, size, location, construction method and style, and condition. In detail, select at least three recently sold comps (i.e., sold within the last 90 days) that describe recent upgrades or improvements.
Once you have found three or more very good comps, you can calculate your property’s after-repair value (ARV). There are two most typically used methods:
- Find the average sales price of comparable properties. For example, if you found three preferable comps, add their sold prices together, then divide by three, and you would have the average price. This number is your property’s after-repair value (ARV), a number that is meant to be used 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 mode can be a bit more detailed and precise than the first option, but it does require lots of other steps.
Utilize Your ARV
Once you have knowledge of your property’s ARV, you can use it in several ways. Primarily, it can allow you to set a less generic rental rate. By comprehending how your newly renovated property compares to others in the neighborhood, you can establish that you are greatly optimizing your rental home’s potential. Another way that investors oftentimes use after-repair value is when purchasing investment properties.
When buying out a new investment property, you merely take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then help you to see where to start bidding for a property. Oftentimes, investors may go as high as 80% ARV, which immensely increases the chance of an acceptable offer. But naturally, the higher the ARV you use to generate your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes a lot of practice and competence. While a number of investors learn to do so on their own, it can be effective to rely on the mastery of a real estate professional or property management expert. Either one can greatly help you locate comparable properties and completely make sure that your calculations unveil the true nature of the property, its location, and its great potential as a rental house.
Have you recently done renovations on your investment property? Contact Real Property Management Dade and don’t hesitate to request your FREE rental market analysis to establish you to stay competitive. Call us at 305-501-1511 to speak with a Palmetto Bay property manager today.
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