If you’re prepared to begin your journey as a single-family rental home investor in Beaverton, among the most crucial terms you first need to know is After Repair Value (ARV). The after-repair value of a property refers to the value of a property that has been fixed up or renovated. In particular, ARV refers to the estimated future value of the property, including all the repairs and improvements. To determine your property’s ARV to use it right, you must first know how to calculate it accurately. Keep reading to learn how to do so.
Start With a Market Analysis
A competitive market analysis is one of the best things to calculate your property’s ARV. By understanding comparable properties (comps) that have recently sold, you can get a good idea of your property’s new market value. Many investors start by searching the multiple listing service (MLS) for recently sold properties that are as similar to your new, improved rental house as possible. For example, you might be looking for comps close to your property in age, size, location, construction method and style, and condition. More specifically, try to find at least three recently sold comps (i.e., sold within the last 90 days) that detail recent upgrades or improvements.
When you’ve found three or more decent comps, you can then calculate your property’s after-repair value (ARV). There are two standard methods:
- Find the average sales price of comparable properties. For example, if you found three good comps, add their sold prices together, divide by three, and then you would have the average price. This number is your property after-repair value (ARV), which should be used to estimate the likely sales price of your own single-family rental house after 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 way can be more accurate than the first, but it takes a few more steps.
Using Your ARV
As soon as you have the information about your property’s ARV, you can use it in several ways. Initially, it can assist with establishing a better rental rate. By understanding how your newly renovated property compares to others in the neighborhood, you can take advantage of your rental home’s potential. Another way that investors often use after-repair value is when buying investment properties.
When obtaining a new Beaverton investment property, you may want to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can help you know where to start bidding for a property. In some cases, investors may go as high as 80% ARV, significantly increasing the chance of an acceptable offer. Of course, the higher the ARV you use to determine your offer price, the higher the risk for your profit margins afterward.
Calculating an accurate after-repair value takes practice and skill. While many investors learn to do so on their own, it can be helpful to rely on the expertise of a real estate professional or property management expert. Either one can help you locate comparable properties and ensure that your calculations reflect the true nature of the property, its location, and its future potential as a rental house.
Have you recently completed renovations on your investment property? Contact Real Property Management Assurance and request a rental market analysis to ensure you stay competitive. Call us at 971-270-2600 to speak with a Beaverton property manager today.
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