In real estate ARV is short for after repair value, or the estimate of a property’s value after all repairs and upgrades are completed. For real estate investors, especially those who flip houses, this number is important because it calculates the margin between the “as-is” value of the desired investment property and the value of a developed property that has been completely renovated.
ARV = Property’s Current Value + Value of Renovations
It is the basis of the property’s selling price, comprising the purchase price plus the total cost of repairs. The key to the profitability of property flipping is that repairs more than pay for themselves.
The after repair value will help you plan your strategy and also help determine which real estate financing choice is best. The ARV can provide investors a pretty good picture of what they can sell an investment property for.
In order for the ARV to be accurate, the investor will need to be able to get accurate repair estimates and insight into the local market. Seasoned investors that have been flipping homes for years can usually walk into a property and assign a value based on their knowledge and experience quickly. For newer investors, this will not be the case and it will take a good bit of time.
The ARV is a calculation of a snapshot in time – the value of the property under the current housing market conditions and the home’s state of repair at the time of calculation. This value can change daily throughout the renovation cycle of a home.
What Is the 70% Rule?
Maximum Purchase Target = (ARV x 70%) – Estimated Repairs
This rule is popular for real estate investors. It tells you the maximum you should spend on a flip property. However, it is only a general guidance and you should not consider it an ironclad rule.
After Repair Value (ARV) Limitations
The housing market can change, causing comparable home values to go up or down. Renovation costs can also vary and there may be hidden damage in the property.
In addition, an appraiser might value properties differently than a realtor or investor. Lenders use appraisals, which could lead to a lower pre-repair property value. Flippers must be good negotiators when they buy a distressed property and then sell it after repairs. A flipper good at estimating repairs but poor at negotiations may not receive the property’s ARV at sale time.
Need Help Assessing Your Potential Property?
Investor Loan Source is not your everyday lender – we were created by real estate experts who know the markets and typical renovation costs well. If you need help assessing a property and determining if it is “a good deal,” or not, please reach out to us. We are committed to helping investors grow their wealth through real estate. Need a loan? We have a wide variety of products for your fix and flip and rental properties, as well as commercial and wrapable loans.