In real estate investing, particularly fix and flip investing, choosing the right property to invest in can determine if the project will be profitable. So, before selecting a property to flip it’s important to know what the value of the home will be after renovations, or the After-Repair Value (ARV).
What Is ARV?
Simply put the ARV is exactly what it sounds like. It’s the estimated future value of a property once all the renovations have been completed. With this in mind, a $200k renovation to a home does not mean the home’s value will automatically go up $200k in value.
How to Determine the ARV?
To determine the ARV an appraiser will first evaluate the distressed property to determine its current ‘As Is’ value. Second, with the rehab list provided by the investor, the appraiser will also determine the approximate value of the property after those renovations have been completed. Finally, with the rehab list still in hand, the appraiser will look at similar properties in the surrounding area that are comparable to the distressed property after the renovations have been completed. Based on those comparable properties and the similarities to the investment property, the appraiser will then determine the ARV.
Typically, hard money lenders, like those in the Bridge Loan Network Marketplace, will look into the ARV when determining if a loan scenario is a right fit for their company, and to help determine the max loan amount they can lend by having an appraisal done on the distressed property.
The After Repair Value (ARV) Formula:
ARV = (Property’s Purchase Price) + (Value of Renovations in Local Market)
Why Should You Calculate the ARV?
Determining the ARV is significant because it provides real estate investors with a general idea of a property’s value, the value of the renovations and, the resell value of the home for once the renovations are complete. What all of this really comes down to is to help the investor determine if a project will be profitable and to help the lender determine how much they can lend on the property.
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