ARV In Real Estate Complete Guide + Calculations
ARV stands for After Repair Value. You may have heard of this if you’ve ever considered a full makeover of your home, perhaps before planning to sell it, or if you’re flipping a property.
Essentially, it’s all about calculating how much money you’ll gain when you come to sell your home after you’ve renovated it, if that’s something you want to do.
If you make an investment in a property, and if you renovate it competently and nicely you can sell it straight away afterwards for a great ROI generally — however before buying a property and preparing to do such a renovation-flip you’ll want to know the ARV of the home so you know if the deal is good or not.
Read our guide to find out more about the specific details regarding ARV in real estate.
Table Of Contents
What Is After Repair Value (ARV) In Real Estate?
After Repair Value (ARV) is a term to describe the estimated value of a property once renovations have been completed.
This valuation is useful for if you’re hoping to sell your own home that you will first renovate, or if you’re flipping a house; in other words, if you invest in a property for business purposes to then renovate and sell on afterwards to make a profit out of it. Having the ARV calculated before deciding whether to buy and renovate a property is extremely important.
If you find out that spending loads of money on giving the property a makeover isn’t going to be worth it, you might find yourself at a loss at the end of it all. Therefore, there’s not much point in investing in the first place.
How To Calculate ARV for Real Estate
The most common way to calculate an after-repair value is to add up the cost of repairs needed to bring your property up to standard with the average selling price of similar homes in your area. This gives you an idea of what your house could be worth if you sold it now.
If you’re looking at buying a house, you need to decide whether you’d prefer to buy it as is, or fix it up first. The latter option will give you a bigger return on your investment, but also means you’ll need to spend some time and money getting things done.
When you’ve decided which route you’d rather take, you need to get a professional evaluation carried out on your home. This should take everything into account, such as the condition of the roof and windows, electrical wiring, plumbing and heating systems, as well as any other issues you might have noticed.
Once you’ve got a report detailing exactly what needs doing, you need to work out how much each job costs. You’ll then need to add these figures together to create an estimate of the total cost of repairing your property. When you’ve calculated this figure, you then need to compare it against the average selling prices of similar houses in your local area.
If the cost of repairs is lower than the average selling price, your home will likely fetch a higher price when you eventually put it on the market. But if the cost is significantly higher, you won’t stand to benefit much from renovating the property. Instead, you’ll probably end up losing money.
Why Do I Need An ARV Estimate Before Buying A House?
An ARV estimate is important because it helps you understand the true value of your property. If you don’t have one, you could end up paying more than you bargained for. Basically, if you’re looking to invest in a property, you need an ARV estimate to help you determine whether the investment is actually going to be worthwhile.
This is especially important if you plan to flip the property – meaning you intend to resell it once you’ve fixed it up. When you’re trying to sell a house, you need it to look its best, so you’ll want to ensure that any problems are addressed before putting it on the market. This can mean spending hundreds of pounds on renovations, which may not always be worth it. It’s therefore vital that you get an accurate ARV estimate before making any decisions.
How Can I Get An ARV Estimate For My Home?
The easiest way to find out what your home is worth is to use a free valuation tool that you can find on Zillow and RedFin (they both have their own).
Once you find a suitable match, you can view all the details of the property, including the estimated repair costs. The site even lets you save searches, so you can revisit them later if you need to.
Alternatively, you can contact a number of independent valuers or appraisers who specialize in providing estimates for homeowners. Although it does cost more money to get an appraiser in, it’s probably a more accurate way of finding out the true ARV. This is instead of working it all out for yourself with the help of Zillow or RedFin, particularly if you’re unsure about what you’re doing!
What Is the 70 Percent Rule In Real Estate?
The 70% rule is an important rule that all real estate investors should know about. The rule states that investors should pay no more than 70% of the property ARV (minus the repair costs). The point of this is to make sure that you aren’t going to lose out at the end of it all and will be able to definitively profit from the investment once you re-sell the property.
The remaining 30 percent of this formula will include any additional costs, taxes or fees that you have to pay on the property — whatever is left over after that will slide nicely into your pocket!
The Bottom Line & Summary
When investing in a property, or if you’re thinking of re-doing your own home and then selling it on afterwards, it’s essential that you get an accurate estimation of the property’s after repair value.
This gives you the chance to assess whether investing in the property makes sense and will be worth it in the long-run. It’s important to make sure you do your research thoroughly. We suggest getting an appraiser in to give you the most accurate estimate of the ARV.
Plus, always keep in mind the 70 percent rule – never offer to buy the property for more than 70 percent of the estimated ARV, otherwise you could lose out big time. No one wants to buy a property only to renovate it and then sell it on for less than what you spent on it!