If there is one acronym every real estate investor needs to know, it's ARV—After Repair Value. Whether you are flipping a house in San Diego or renovating a duplex in Sacramento, the ARV dictates your max purchase price, your renovation budget, and your potential profit. It's also the number your hard money lender will use to determine how much they are willing to lend.
Defining After Repair Value
ARV is the estimated value of a property once all planned renovations and repairs are completed. It is an educated projection of what the home will sell for in the current market, assuming the property matches the standard of other recently updated homes in the neighborhood.
Lenders use ARV to calculate the Loan-to-ARV (LTARV) ratio, ensuring that their loan amount is protected by the future value of the asset.
How to Calculate ARV Accurately
Calculating ARV requires pulling comparative market analysis (comps). You must look at recently sold homes in the immediate vicinity (usually within a 0.5 to 1-mile radius) that have similar square footage, bed/bath counts, and lot sizes.
Crucially, you must only compare your property to homes that have been fully renovated to the level you plan to achieve. Comparing a proposed luxury flip to a home with a 15-year-old kitchen will result in a flawed ARV and a blown budget.
Accurate ARV calculation is the foundation of a successful flip. It protects the investor from bad deals and gives the lender the confidence needed to fund the project.
Overestimating ARV can lead to overpaying for the property or overspending on the rehab, severely cutting into or eliminating your profit margin.
Yes. Hard money lenders will typically order an 'as-is' appraisal and an 'ARV' appraisal to independently verify your numbers before funding.
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