After Repair Value (ARV) Calculator
The After Repair Value (ARV) is a crucial metric for real estate investors, particularly those involved in house flipping. It represents the estimated value of a property once all necessary repairs and renovations have been completed. Understanding ARV helps investors determine the maximum they should pay for a property and estimate their potential profit.
How ARV is Calculated
ARV is primarily determined by analyzing comparable sales (comps) in the local market. Investors look for recently sold properties that are similar in size, age, and features to the subject property, and that have already been renovated to a high standard. The average price per square foot of these renovated comps is then used to estimate the ARV of the property in question.
The basic formula for ARV is:
ARV = Property Square Footage × Average Price Per Square Foot of Renovated Comps
Beyond just the ARV, investors also need to consider their total project costs (purchase price + repair costs) to calculate their potential profit and return on investment (ROI).
Using the ARV Calculator
This calculator helps you estimate a property's After Repair Value, total project costs, estimated profit, and potential Return on Investment (ROI). Input the property's square footage, the average price per square foot of renovated comparable properties in the area, your estimated repair costs, and the purchase price.
Example Scenario
Let's say you're looking at a property with 1,500 square feet. After researching comparable renovated homes in the area, you find that they are selling for an average of $200 per square foot. You estimate that the repairs needed for this property will cost $50,000, and you plan to purchase it for $250,000.
- Property Square Footage: 1,500 Sq Ft
- Average Price Per Square Foot of Renovated Comps: $200
- Estimated Repair Costs: $50,000
- Purchase Price: $250,000
Using the calculator:
- After Repair Value (ARV): 1,500 Sq Ft * $200/Sq Ft = $300,000
- Total Project Cost: $250,000 (Purchase) + $50,000 (Repairs) = $300,000
- Estimated Profit: $300,000 (ARV) – $300,000 (Total Project Cost) = $0
- Return on Investment (ROI): ($0 / $300,000) * 100 = 0%
In this example, the numbers indicate no profit, suggesting this might not be a good deal. This highlights the importance of accurate ARV and cost estimations to ensure a profitable investment.
The 70% Rule
A common guideline for real estate investors, especially house flippers, is the "70% Rule." This rule suggests that an investor should pay no more than 70% of the After Repair Value (ARV) of a property, minus the cost of repairs. This leaves room for profit, holding costs, and unexpected expenses.
Maximum Allowable Offer = (ARV × 0.70) - Estimated Repair Costs
While this calculator doesn't directly apply the 70% rule, understanding your ARV and total project costs allows you to evaluate if a deal aligns with such investment strategies.
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