If you are inclined and certainly eager to start yourself as a single-family rental home investor in Rehoboth Beach, one of the most significant terms you first need to hear is After Repair Value (ARV). The after-repair value of a property points to the value of a property that has been repaired or renovated. More particularly, ARV means the estimated future value of the property, including all of the repairs and corrections. To take in your property’s ARV and use it to your benefit, you will first need to recognize how to calculate it aptly. Keep reading to understand the steps to satisfactorily calculate the ARV for any investment property.
Research Market Analysis
One of the best methods to calculate your property’s ARV is to fulfill a competitive market analysis. By viewing comparable properties (comps) that have recently sold, you can get a decent idea of what your property’s new market value will be. A large number of investors start out by seeking the multiple listing service (MLS) for recently sold properties that are pretty much like your recently repaired rental house as possible. As a sample, you would want to look out for comps that are very much like your property in age, size, location, construction method and style, and condition. Basically, find at least three recently sold comps (i.e., sold within the last 90 days) that detail recent changes or improvements.
Calculate ARV
Once you have found three or more acceptable comps, you can then calculate your property’s after-repair value (ARV). There are two basic methods:
- Find the average sales price of comparable properties. To cite an instance, if you found three more desirable 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 is expected to be used to estimate the likely sales price of your own single-family rental house after new improvements 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 proceeding can be a bit more accurate than the first option, but it does require more steps.
Utilize Your ARV
Once you’ve already calculated your property’s ARV, you can use it in several ways. Basically, you can use it to set a less inaccurate rental rate. By finding out how your newly renovated property compares to others in the neighborhood, you can always make certain that you are advancing your rental home’s potential. One other way that investors constantly use after-repair value is when trying to buy investment properties.
When getting a new investment property, you may necessitate taking 70% of the property’s after-repair value and subtracting the costs of repairs and improvements. The resulting offer price can then contribute to you comprehending where to start bidding for a property. Oftentimes, investors may go as high as 80% ARV, which in turn increases the chance of an acceptable offer. But on the other hand, the higher the ARV you use to get your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes skill and practice. While a large number of investors learn to do so on their own, it can be totally helpful to rely on the practical knowledge of a real estate professional or property management expert. Either one can lead you to locate comparable properties and check that your calculations indicate the true nature of the property, its location, and its future potential as a rental house.
Have you recently executed renovations on your investment property? Contact Real Property Management Diamond and just ask for your FREE rental market analysis to see to it that you stay competitive. Call us at 302-313-7700 to speak with a Rehoboth Beach property manager today.
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