The After Repair Value, or ARV, is an estimated value of a property after it has been completely renovated. It is one of the most critical things you need to know when buying an investment property in need of rehab. What is the property going to be worth when the rehab is finished? And it’s critical to estimate this value before you buy the property.
The ARV is going to be a value that represents the market value of similar properties in the area. So if your rehab is a two-story three bedroom two bath house, and the houses in the area are mostly two-story three bedroom two bath houses, and the sales of these houses have been at relatively similar amounts, then your ARV estimate should really be very close to that number.
If your estimate falls short and you end up having to do a few more upgrades or improvements, you will be paying more for these. But don’t go overboard, as every single one you do is going to cost you money. However, if some new plants or bushes, cosmetic improvements such as door knobs or cupboard handles, or maybe a little nice curb-appeal will bring the ARV up to the comparables it is probably worth doing.
So when you decide to buy a property you need to look at what the seller wants for it, look it over to see what work needs to be done, then look at the comparables in the area and estimate what the house would go for after the repairs and renovations are completed. If you are able to estimate the price you can get the property for, the cost of the repairs, and what the property will be worth after the repairs, you will quickly be able to look at a property and decide if it is a good investment for you, a great deal for everyone involved, and a good moneymaker. If it is, snatch it up and make your money. If it isn’t, make a pass and keep looking.