If you are ready and enthusiastic to start as a single-family rental home investor in Crystal Lake, one of the most crucial terms you first need to identify is After Repair Value (ARV). The after-repair value of a property speaks of the value of a property that has been developed or renovated. More characteristically, ARV signifies the estimated future value of the property, including all of the repairs and enhancements. To be aware of your property’s ARV and use it beneficially, you will first need to ascertain how to calculate it properly. Keep reading to take the steps to excellently calculate the ARV for any investment property.
Research Market Analysis
One of the most efficient means to calculate your property’s ARV is to fulfill a competitive market analysis. By taking a look at comparable properties (comps) that have recently sold, you can get an extremely good idea of what your property’s new market value will be. Most investors initiate this process by checking into the multiple listing service (MLS) for recently sold properties that are quite alike your recently updated, developed rental house as possible. For illustration, you would want to uncover comps that are really similar to your property in age, size, location, construction method and style, and condition. Specifically, discover at least three recently sold comps (i.e., sold within the last 90 days) that detail recent renovations or improvements.
Once you have found three or more ideal comps, you can calculate your property’s after-repair value (ARV). There are two most used methods:
- Find the average sales price of comparable properties. Like, if you found three very 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 has to be used to estimate the likely sales price of your own single-family rental house after the latest 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 practice can be a bit more precise than the first option, but it does require a certain additional step.
Utilize Your ARV
Once you find out your property’s ARV, you can use it in several ways. Mostly, it can really help you to set a more exact rental rate. By understanding well how your newly renovated property compares to others in the neighborhood, you can secure that you are raising your rental home’s potential. Another operation that investors most often use after repair value is when purchasing investment properties.
When procuring 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 help you to easily determine where to start bidding for a property. Every so often, investors may go as high as 80% ARV, which extremely increases the chance of an acceptable offer. It goes without saying though, the higher the ARV you use to figure out 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 most investors learn to do so on their own, it can be effective to rely on the proficiency of a real estate professional or property management expert. Either one can definitely help you to locate comparable properties and completely ensure that your calculations express the true nature of the property, its location, and its future potential as a rental house.
Have you recently applied for renovations on your investment property? Contact Real Property Management NW Chicago Suburbs and freely request your FREE rental market analysis to secure your stay competitive. Call us at 847-737-4800
to speak with a Crystal Lake property manager today.
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