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After Repair Value, or ARV. ARV is important because it is used to determine a project sale, renovation budget, and profit! Knowing how to use your ARV is essential to budgeting, and profiting from your flips.
Learn More About ARV below.
What Is After Repair Value?
ARV is the most important calculation for fix-and-flip investors.
Hard money lenders use the after repair value to calculate profit and future value for the long-term properties.
The following information is important when determining a property’s current value:
- Location (neighborhood, accessibility, proximity to amenities, etc)
- Lot (size, corner or interior, shape, slope, terrain, roads available, etc)
- Structure (size, number of stories, type, style, etc)
ARV is essential to know how much you can earn from a real estate investment.
How ARV Works:
After figuring out the property’s current value, the next step is to estimate the repairs needed and the value of those repairs.
The after repair value (ARV) is the sum of the purchase price and the value of repairs. You will need to estimate the cost of these repairs to determine your project’s profitability.
How To Calculate Your After Repair Value
To calculate the ARV of a property, the following you can apply the following formula.
Property’s purchase price is $100k. The repair cost is $25k, and you expect to sell it for $150,000, the value of repairs is $50k but the cost of repairs is only $25k. This results in an ARV of $150k and a potential profit of $25k.
ARV, or after repair value is important because it determines a projects sale price, renovation budget, and overall profits for the flippers. It is also used investors looking to determine the value of a rental property after renovations to estimate rent and/or the future value of the long-term property.
Knowing your flips potential ARV helps find investors, lenders and find a variety of hard money loans. It also helps set your budget and understanding for your max profit for the repairs you will make, and how much to list it for in the future.