How To Determine The ARV Of A Property
When figuring out the after-repair value or ARV of a property, you must carefully evaluate a home’s comparable properties, called “comps” in real estate. Essentially, “comparable properties” refers to properties or houses with similar features or square footage to other investment properties under your assessment.
You must find other comps close to the property you intend to renovate to provide an excellent reference point for property value. Calculating a property’s ARV is crucial in clearly and accurately understanding how much certain repairs and renovations potentially add to your property.
Moreover, each comparable property you choose sufficiently serves as a solid benchmark in estimating a home’s market value. In addition, comps can come in handy when estimating the profit you likely earn when flipping the house. Using comps is the most dependable tool in calculating a property’s value after factoring in the cost of repairs.
The ARV Calculation Process
First, identify and come up with about three to six comps or relatively comparable properties, which provide a reference point in determining your property’s ARV. Choose comparable properties similar to the actual investment property in terms of square footage, dimensions, amenities, etc.
Here are key attributes that can help you determine the property’s ARV:
- Style: Sticking to a similar home style is imperative. It won’t make sense to compare a ranch to a ranch-style home.
- Bathroom/Bedroom: When finding comparable properties, you only need to consider above-grade bathrooms and bedrooms. Likewise, properties of a similar design can only vary from each other by a single bathroom or bedroom.
- Type of Property: Make sure to compare properties of a similar kind. For instance, you must compare a duplex with another duplex and townhouses to townhouses. The same logic applies to single-family detached homes and properties of another kind.
- Square Footage/Size: You only need to consider calculating the square footage above ground level. Ensure you’re careful enough to fall in between 20% of the property you’re comparing. In addition, you need to estimate the basement’s square footage measurements separately.
- Age: The model you utilize to determine your property’s price should be established within a decade of the property you intend to analyze. However, you can increase the age bracket if the home you’re investigating is over half a century old.
- Distance: The ideal comparable property should be situated approximately a mile from any suburban or urban neighborhood.
Afterward, you need to calculate the median price of the comparable properties per square foot. Finally, you need to multiply the investment property’s square footage by what you get from the comp’s median price per square foot.
Determining a Property’s ARV Is Vital for Investment
Knowing how to work out a property’s after-repair value is fundamental if you want to establish yourself as a fix-and-flip investor. Similarly, you need to understand how to utilize comparable properties as a reference point when valuing a new house. Contact us today to get expert advice on your next investment opportunity.