After Repair Value (ARV) Explained – Real Estate Investing
What is ARV?
ARV stands for the After Repair Value, meaning, what the property is worth after it is repaired.To put it another way, ARV is the value that a property could sell or appraise for.
How is the ARV determined?
ARV is determined by three main factors and subcategories.
Determine what you will do to improve the property. This would include any upgrades or additions to the property, and the quality of the repairs.
Research what the comps are for your property. Comps are properties that are just like yours, but finished. It is imperative that comps are the same area (within half a mile), approximately same size, and have a relevant sales date that is within the last 3 to 6 months.
Are there any concessions? Concessions are when the seller helps the buyer purchase the property. You might contribute 3% to 5%, and this in turn does impact your bottom line.
Why is ARV so important?
ARV is very important because lenders use a percentage of the ARV to determine your loan amount. For example, if your property has an ARV of $200K, and the lender offers 75% of the ARV, then they will lend you $150K.
How do lenders determine ARV?
Lenders determine the ARV by running comps. Just like you, lenders will compare square footage, the sale date, and the sales price to properties in the area.
Be honest and realistic!
It is imperative that you are honest and realistic with your numbers. The more truthful you are, the better it is. An honest ARV leads to more deals, more loan approvals, better terms, and More Money!
For more information about ARV’s, watch our most recent clip.