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Decoding After Repair Value: A Guide for Your Severance Property

Real estate agent holding a small house, desktop with tools, wood swatches and computer on background, top view. If you are eager to establish yourself as a single-family rental home investor in Severance, one of the important terms you first need to take into consideration is After Repair Value (ARV). The after-repair value of a property has something to do with the value of a property that has been upgraded or renovated. More notably, ARV pertains to the estimated future value of the property, including all of the repairs and renovations. To know your property’s ARV and use it to your advantage, you will first need to find out how to calculate it perfectly. Keep reading to grasp well the steps to correctly calculate the ARV for any investment property with Mexpat Realtors.

Research Market Analysis

One of the best practices to calculate your property’s ARV is to do a competitive market analysis. By checking out comparable properties (comps) that have recently sold, you can get a helpful idea of what your property’s new market value will be. The majority of investors just begin by checking the multiple listing service (MLS) for recently sold properties that are basically the same as your current, upgraded rental house possible. For instance, you would want to find comps that are quite similar to your property in age, size, location, construction method and style, and condition. Specifically, put together at least three recently sold comps (i.e., sold within the last 90 days) that detail recent enhancements or improvements.

Calculate ARV

Once you have found three or more similar comps, you can then calculate your property’s after-repair value (ARV). There are two most used methods:

  1. Find the average sales price of comparable properties. For instance, if you found three nice 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 would have to be used to estimate the likely sales price of your own single-family rental house after recent updates and repairs.
  2. 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 method can be a bit more precise than the first option, but it does require a lot of other steps.

Utilize Your ARV

Once you comprehend your property’s ARV, you can use it in several ways. Above all, it can help you set a more exact rental rate. By realizing how your newly renovated property compares to others in the neighborhood, you can make sure that you are growing your rental home’s potential. Another way that investors habitually use after-repair value is when trying to buy investment properties.

When getting a new investment property, you may need to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then aid you to determine where to start bidding for a property. Often, investors may go as high as 80% ARV, which undoubtedly increases the chance of an acceptable offer. But definitely, the higher the ARV you use to find your offer price, the higher the risk for your profit margins after the fact.

Calculating an accurate after-repair value takes much practice and know-how. While plenty of investors learn to do so on their own, it can be a great help to rely on the expertise of a real estate professional or property management expert. Either one can be of help to you locate comparable properties and warrant that your calculations render the true nature of the property, its location, and its possible future as a rental house.

Have you recently accomplished renovations on your investment property? Contact Real Property Management of the Rockies and just request your FREE rental market analysis to make sure you stay competitive. Call us at 970-658-0410 to speak with a Severance property manager today.

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