If you are inclined to dive in as a single-family rental home investor in Owasso, one of the most important terms you first need to figure out is After Repair Value (ARV). The after-repair value of a property simply denotes the value of a property that has been upgraded or renovated. More notably, ARV hints at the estimated future value of the property, including all of the repairs and upswings. To know your property’s ARV and use it in an appropriate manner, you will first need to really understand how to calculate it correctly. Keep reading to grasp well the steps to appropriately calculate the ARV for any investment property.
Research Market Analysis
One of the most effective means to calculate your property’s ARV is to bring about a competitive market analysis. By carefully looking at comparable properties (comps) that have recently sold, you can get a pretty good idea of what your property’s new market value will be. Several investors get started by simply looking over the multiple listing service (MLS) for recently sold properties that are quite the same as your current, upgraded rental house as possible. For a case in point, you would want to ascertain comps that are much like your property in age, size, location, construction method and style, and condition. More specifically, check out 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 great comps, you can then calculate your property’s after-repair value (ARV). There are two very common methods:
- Find the average sales price of comparable properties. As an example, if you found three suitable 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 should also be used to estimate the likely sales price of your own single-family rental house after all the 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 style can be a bit more specific than the first option, but it does require a few more steps.
Utilize Your ARV
Once you know full well your property’s ARV, you can use it in several ways. Specifically, it can easily help you to set a more distinct rental rate. By taking into consideration how your newly renovated property compares to others in the neighborhood, you can see to it that you are building up your rental home’s potential. Another approach that investors frequently use after repairing value is when getting investment properties.
When procuring a new investment property, you merely take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price can then be beneficial to you to discover where to start bidding for a property. From time to time, investors may go as high as 80% ARV, which drastically maximizes the chance of an acceptable offer. But remember, the higher the ARV you use to ascertain your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and ability. While masses of investors learn to do so on their own, it can be useful to rely on the awareness of a real estate professional or property management expert. Either one can let you locate comparable properties and always make certain that your calculations render the true nature of the property, its location, and its likely possibilities as a rental house.
Have you recently applied for renovations on your investment property? Contact Real Property Management Tulsa and present a request for your FREE rental market analysis to check you stay competitive. Call us at 918-532-7020 to speak with an Owasso property manager today.
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