The After Repair Value (ARV) is an estimate of the value of a property after it has been renovated or repaired. This value is important for real estate investors, as it helps them determine the potential profit of a fix & flip or rental property. Here is a step-by-step guide to calculating ARV:
Determine the scope of work: The first step in calculating ARV is to determine the scope of work that needs to be done to the property. This should include a detailed list of all repairs, renovations, and improvements that will be made to the property.
Estimate the cost of the work: Once you have a list of the work that needs to be done, the next step is to estimate the cost of each item on the list. This may include the cost of labor, materials, and any other expenses that will be incurred as part of the renovation process.
Add the cost of the work to the purchase price: To calculate the total cost of the renovation, add the estimated cost of the work to the purchase price of the property. This will give you a rough estimate of the total cost of the project.
Research comparable properties: To determine the ARV of the property, you will need to research comparable properties in the area. Look for properties that are similar in size, age, condition, and location to the property you are renovating.
Adjust the values of the comparable properties: Once you have identified a few comparable properties, you will need to adjust the values of these properties to account for any differences between them and the property you are renovating. For example, if the comparable properties have a higher level of finishes or more updates than the property you are renovating, you may need to adjust the values downward to account for these differences.
Calculate the ARV: To calculate the ARV of the property, take the average value of the comparable properties and add in the estimated profit margin that you hope to achieve. The profit margin is the difference between the total cost of the renovation and the ARV of the property.
In conclusion, calculating ARV is an important step for real estate investors who are considering a fix & flip or rental property. By determining the scope of work, estimating the cost of the work, researching comparable properties, and adjusting the values of the comparable properties, you can determine the potential profit of the property and make informed decisions about your investment.