Research Market Analysis
One of the effective methods to calculate your property’s ARV is to endeavor to complete a competitive market analysis. By examining comparable properties (comps) that have recently sold, you can get a pretty good idea of what your property’s new market value will be. A great number of investors start out by going over the multiple listing service (MLS) for recently sold properties that are essentially like your recently renovated rental house as possible. For instance, you would want to locate comps that are very closely like your property in age, size, location, construction method and style, and condition. To be specific, identify at least three recently sold comps (i.e., sold within the last 90 days) that detail recent renovations or improvements.
Calculate ARV
Once you have found three or more ideal comps, you can calculate your property’s after-repair value (ARV). There are two usually used methods:
- Find the average sales price of comparable properties. Take one example, if you found three excellent 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 could be used to estimate the likely sales price of your own single-family rental house after developments 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 methodology can be a bit more precise than the first option, but it does require a number of additional steps.
Utilize Your ARV
Once you grasp well your property’s ARV, you can use it in several ways. First off, it can be of help to you to set a less incorrect rental rate. By discovering how your newly renovated property compares to others in the neighborhood, you can really make sure that you are increasing your rental home’s potential. Another undertaking that investors routinely use after repair value is when trying to acquire investment properties.
When making a purchase for a new investment property, you may entail to take 70% of the property’s after-repair value and subtract the costs of repairs and improvements. The resulting offer price you can then use to you perceive where to start bidding for a property. A few times investors may go as high as 80% ARV, which essentially multiplies the chance of an acceptable offer. Most certainly, the higher the ARV you use to determine your offer price, the higher the risk for your profit margins after the fact.
Calculating an accurate after-repair value takes practice and capability. While a great number of investors learn to do so on their own, it can be useful to rely on the efficiency of a real estate professional or property management expert. Either one can foster you locate comparable properties and ascertain that your calculations reveal the true nature of the property, its location, and its ultimate potential as a rental house.
Have you recently implemented renovations on your investment property? Contact Real Property Management Key Response and claim your FREE rental market analysis to make sure you stay competitive. Call us at 615-953-8700 to speak with a White House property manager today.