When investing and rehabbing a piece of real estate, properly estimating After Repair Value (ARV) at the onset of the project is pivotal. This is a skill that any real estate investor should have, but it’s going to take some practice to get to a certain level of expertise. If you have any doubts about your abilities, don’t hesitate to contact your hard money lender for some help--we are experts and have been doing this for many years. Additionally, here are some tips to remember so you can calculate a solid ARV:
Calculating After Repair Value
- Look at comps - See what houses in the same area have sold for as of late. As an additional, but not as important data point, you should review the asking prices of those that are currently for sale. Looking at these numbers in the area will get you started off on the right foot when it comes to calculating ARV. You can think of these somewhat of “going rates” for what you can expect to ask for in terms of the sale price of your property.
- ...but make sure your home is similar - When looking at comps in the area, you have to take into account what your property will look like once the rehab job is done. There’s no point in looking at what other houses are selling for if the planned level of finish/rehab for your home is majorly under (or above) those you are comparing it to.
- Age of the home – When analyzing comps, make sure your home is roughly the same age as the comps. Houses in the 60s, 70s and 80s all have different looks and feels. If possible, make sure you keep your comps within 5 years of your property.
- Proximity of the comp – You need to be able to be flexible when determining how far away from your home you can go to get a good comp. You want to search your neighborhood first and foremost when looking for a good comp. Rehabbed homes in the neighborhood will always give you the best comp. If your neighborhood doesn’t have any good comps, try and go out no greater than one mile and try not to cross any major roads.
- Room count – You always want to get comps with similar room counts as your home. 3 bedroom 2 bath, etc. Even if you have to use a comp with one more bedroom or bathroom than yours it is okay. However, it is a HUGE deal when your property has anything less than 3 bedrooms or 2 baths. If your home has either of those features, you need to find comps with that same room count. Those features are considered a major negative when selling a house and you need to understand what impact you can expect when selling a home like that.
- Square footage - It is easy enough to calculate the square footage of a home, but that’s not what we’re talking about here. You have to be able to know how square footage relates to the value of a piece of real estate. With homes that have the same level of rehab, all things being equal, a smaller home will fetch a higher price per square foot nearly every time.
These are just a few pointers to remember as you get started calculating After Repair Value. As we said before, this is a skill that, while necessary, takes time to master. Here at Catalyst Funding we can help you properly calculate your ARV for any potential deals you may have on the table. We also provide hard money lending. Call us today at 832.648.3626 and speak to one of our team members.