Are you wondering if you should close on an upcoming deal? Not sure if you’re making the right decision? Make sure to consider the After Repair Value (ARV). ARV is the property’s value after upgrades and renovations. Knowing this in the beginning will let you know if the deal you’re pursuing is worth it.
Not calculating the ARV can lead to wasted time and money. To ensure that does not happen, follow along with the formula: ARV = Property’s Value + Value of Renovations. The property’s value is how much it is worth currently at the beginning, in other words, how much is the property worth before the upgrades are made?
Next, note the amount you are planning to spend on renovating the property. Be sure that during this step, you are recording and estimating that number as accurately as possible. This way when you calculate and evaluate the ARV, you are able to tell if the upgrades and fixes increased the property’s value. It will also be able to tell you if it’s worth it to invest in that specific property or, give you insight into what type of property you should be investing in. Now, some things such as paint color do not affect the ARV, however, it may help it sell faster.
Think of the ARV calculation as a picture in time. You’re figuring out the after-repair value based on the current value of a property at a certain moment. That original property’s value can fluctuate weekly or even daily. It’s important to note that ARV is not a fixed dollar amount, it’s more of an estimate or prediction.