How to calculate After Repair Value
After Repair Value (ARV)
The after repair value (ARV) estimates the future value of a distressed property after it’s been repaired. ARV is not a property’s current value when purchased but rather the estimated value of the property once improvements are made. ARV is commonly used by fix and flip investors who purchase, renovate, and sell properties within 1 year.
A property’s after repair value includes both its purchase price and the value of its renovations. It’s used to estimate the future sale price of the property once renovated. It’s important for fix and flip investors to know the ARV of a property because it helps measure whether or not there is enough margin for the flip become profitable.
After Repair Value (ARV) Formula
There are several factors that can affect the calculation of ARV. However, the two main components of after repair value are the property’s purchase price and the value of repairs.
The after repair value (ARV) formula is:
ARV = (Property’s Purchase Price) + (Value of Renovations)
How to Calculate a Property’s ARV
To calculate a property’s ARV, the first step is to determine its current as-is value. The second step is to estimate the repair costs and value of renovations. The third step is to check your numbers and compare them to similar properties for sale or recently sold. This will help in determining the profitability of your fix and flip project.
How to Use the After Repair Value
There are multiple ways to use ARV, but the best is the 70% of ARV rule. Fix-and-flip investors can use this rule to set a maximum bid on a property by considering its expected future value and the expected costs of its repairs. This ensures that investors will have enough margin to be profitable or enough of a cushion to absorb unseen costs.