If you are geared up and eager to begin as a single-family rental home investor in Towson, one of the most critical terms you first need to grasp well is After Repair Value (ARV). The after-repair value of a property denotes the value of a property that has been made better or renovated. More definitely, ARV regards the estimated future value of the property, including all of the repairs and refinements. To get your property’s ARV and use it sufficiently, you will first need to discover how to calculate it appropriately. Keep reading to be aware of the steps to suitably calculate the ARV for any investment property.
Research Market Analysis
One of the best methods to calculate your property’s ARV is to undertake a competitive market analysis. By taking into consideration comparable properties (comps) that have recently sold, you can get a pretty good idea of what your property’s new market value will be. Plenty of investors actually start by digging into the multiple listing service (MLS) for recently sold properties that are quite the same as your newly updated rental house as possible. For a case in point, you would want to seek comps that are very much the same as your property in age, size, location, construction method and style, and condition. To be precise, get at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
Once you have found three or more really good comps, you can then calculate your property’s after-repair value (ARV). There are two customary methods:
- Find the average sales price of comparable properties. As an example, if you found three best 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 you can actually use to estimate the likely sales price of your own single-family rental house after renovations 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 way can be a bit more reliable and accurate than the first option, but it does require a lot of other steps.
Utilize Your ARV
Once you are informed of your property’s ARV, you can use it in several ways. First of all, it can assist you to set a better and more accurate rental rate. By perceiving how your newly renovated property compares to others in the neighborhood, you can be certain that you are building up your rental home’s potential. Another process that investors repeatedly use after repairing value is the acquisition of investment properties.
When buying a new investment property, you may have to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then foster you to figure out where to start bidding for a property. Sometimes, investors may go as high as 80% ARV, which seriously maximizes the chance of an acceptable offer. But having said that, 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 practice and competence. While numerous investors learn to do so on their own, it can be useful to rely on the skills of a real estate professional or property management expert. Either one can, without difficulty, help you locate comparable properties and totally make sure that your calculations illustrate the true nature of the property, its location, and its good future as a rental house.
Have you recently executed renovations on your investment property? Contact Real Property Management Metro and don’t be shy to ask for your FREE rental market analysis to be certain you stay competitive. Call us at 410-290-3285 to speak with a Towson property manager today.
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