Understanding After-Repair Value (ARV) in Real Estate
If you’re considering flipping a house or planning a home remodel, you might have come across the term After-Repair Value, or ARV. It’s a tool used by real estate investors and house flippers to estimate a property’s future value after renovations.
What is ARV?
ARV is the projected value of a property after renovations are complete. It’s commonly used to assess the potential worth of a fixer-upper, including its purchase price and resale value after repairs. These repairs could range from installing new kitchen appliances to replacing the roof.
Why ARV Matters
ARV is crucial for investors and house flippers who may not want to purchase properties at market value if they’re not in the best condition. ARV allows them to buy a property at a discounted price, factoring in the cost of future repairs. It can also help secure a loan for the cost of the renovations. Some lenders offer renovation mortgages, with the maximum loan amount being around 75% of the ARV.
Even if you’re not flipping houses, calculating the ARV can give you an idea of how much value your renovations will add to your home.
Appraising the Property
To calculate ARV accurately, it’s important to have your home appraised. An appraiser will evaluate every part of the home, including its overall condition, size, amenities, curb appeal, and location. This gives you a concrete starting point when calculating your ARV.
It’s also important to have the property appraised after renovations. The housing market fluctuates, and unexpected issues can arise during renovations, so a post-renovation appraisal can help you set an accurate listing price.
Assessing the Value of Repairs
An appraiser can also identify necessary repairs and their potential costs. This helps prevent unexpected costs after you’ve calculated the ARV. It’s important to stay realistic when estimating the cost and value of repairs.
The Bottom Line
ARV is a valuable tool for house flippers and homeowners looking to increase their property’s value. It can help ensure a healthy return on investment when it’s time to sell.
