If you are interested in flipping houses Investing in Real Estate, then there is one term that you need to familiarize yourself with. That term is the “after repair value” or ARV. Calculating the ARV is critical to determining any project’s profitability and can ensure that your property investment is worthwhile. Aside from flipping homes, the measure is also important for any real estate investment that involves

What is the After Repair Value?

In the ever-changing world of real estate investment, the After Repair Value is the value of the property after repairs, and hence how much it can be sold for.. This calculation accounts for any renovations such as repairs, remodeling, rehab, or even cosmetic work. “Fix-and-flip” investors often use this calculation in order to get an idea of a property’s value after repair. It is a great tool to use to indicate whether or not the property will be a worthwhile investment.

If you are looking to flip a house, determining the ARV should be your first step. Running this calculation will not only tell you how much the property could sell for after repairs, but it is also useful in giving investors an idea about how much the property is worth initially and how much they should be willing to spend on fixing it up. Without calculating the ARV, you could waste a lot of time and money on an unprofitable property. So how is it calculated?

Use a Comparable Market Analysis (CMA)

You can establish the ARV by using a short radius comparable market analysis.  Real estate comparables are either sold or recently sold properties that are in the same area and are similar to the property you plan to renovate. Comparing these two numbers is what is known as a Comparative Market Analysis. This provides a reliable figure since it uses real sales data and factors in the key differentiations.

When you run a CMA, you will want to look for comparable houses that you wish your investment property to look like when all renovations are complete. You should be looking for comparable properties that are:

• In a one mile radius of the investment property
• Located in the same or a similar neighborhood
• Around the same square footage with the same number of rooms
• Sold within the last four months

It is important to factor in the differences of the property such as condition, age, size and construction. Ideally, you would find 3-6 comparable properties that have been sold within the previous 3 or 6 months 6. These properties should be in the condition that you expect the current property to be in once renovations have been done.

The ARV is then calculated by averaging the sales prices of these properties. This total will be your ARV and it will give you a guide on the expected sales price of your property.

Finding a Precise ARV

The above method is fine for getting a reliable estimate. However, if you need a more precise calculation then you can find out the average price per square footage for the comparable properties. This is the total sales price divided by the total square feet of a property. You can then multiply this figure by the square feet of the property in question.

Final Thoughts

Now that you know what an ARV is and how to calculate it, you are ready to find a suitable fixer-upper property that fits your needs. If you are looking for expert advice on finding a great property to flip in the Orlando area, contact the Safety Net Group today for all your real estate needs.