What is ARV?
What is ARV?
ARV is an acronym for after repair value. After repair value is the value of a property after it has been renovated, improved, or fixed up. Effectively, it’s the estimated future value of a property post renovation. ARV is a common term used by hard money lenders when they seek to make a hard money loan on a fix and flip. It is critically important that house flippers know the ARV of their property in order to gauge risk, and the potential profit in their investment. Hard money lenders need to know the ARV to make sure their loan doesn’t exceed loan to value (LTV) thresholds. However, regular homeowner should also be aware of ARV as they make decisions on whether it’s worth making certain improvements to their homes.
How do you calculate the ARV of a property?
The first step in determining the ARV is understanding your local market. If you don’t have access sale comparables (“Comps”), find an experienced loan real estate agent who does. When I refer to sale comparable, I mean properties that have recently sold in close proximity to the subject. The most common places to find sale comps is through the Multiple listing service (MLS), or through sites like Zillow. You should consider the following when putting together a comp set for your next investment property:
- When did the property sell? The focus should be on homes that sold within the last 90 to 120 days to understand current market conditions.
- How old is the home and what condition was it in? Try to find homes close in condition to what your finish quality will be when you are done with the renovation.
- What are the specs of the house? By this I mean age, size, square footage and bedroom/bathroom count.
- Is the comp in a similar location? As they say in real estate.. location, location, location. In places like New England, home values can change street to street.
- Lastly, investors should also consider macro market conditions and trends, as well as seasonality. Seasonality is a big factor, as the Spring market in New England is stronger than selling in the Fall or Winter.
Keep in mind that ARV is just one calculation, and ultimately it is subjective. There is never a guarantee of profit or sale price.