At the heart of your fix and flip strategy is your ARV, or your after-repair value. This measurement is used to determine the value of your investment, which influences your overall profit margin. Like any savvy investor, you’re probably wondering how to make the most out of your after-repair value. Here’s how you can maximize the ARV of your fix and flip property.
How ARV Works
Your ARV can be used to help determine the selling price of your property, secure funding, and calculate your potential profit. In other words, your ARV is what people are willing to pay for your property. Many fix and flip investors use this measurement because it factors in the repairs and renovations that have been completed at the property, it’s location, and other factors that might affect your resale value. These necessary factors will help you determine if a property is going to turn a profit after you’ve already invested the time and money into it.
How to Calculate the ARV of a Fix and Flip
When it comes time to calculate your property’s after-repair value, the only real way to get an accurate valuation is through comparable sales or comps. A good appraiser will only look at the best handful of comps and use those to estimate your property’s value. Appraisers look for homes that are in great condition and are similar to what the subject will be once the project is complete. There are programs out there that may help determine valuation, but it’s wise to ask an agent or appraiser for help to learn the best way to evaluate and analyze your after-repair value.
Upgrades to Help Maximize Your ARV
Want to get the most from the after-repair value of your fix and flip property? These are the revisions you should make to help maximize your ARV.
Kitchen and Bathrooms
The presentation of your property’s kitchen and bathrooms is what makes or breaks a sale. To get the most bang for your buck, you should allocate a large chunk of the budget to improving the kitchens and bathrooms at your fix and flip property. Generally, these improvements pay for themselves since buyers prefer trendy, new bathrooms and kitchens.
Flooring and Trim
When buyer’s come to visit your property, some of the first features they will see are the flooring and trim. If local, comparable properties are boasting stunning new wood floors, then your carpeted house is bound to sit on the market for longer than expected. When designing the interior of your fix and flip, remember to consider the local trends of the market and what demographics you are catering to.
Mistakes to Avoid When Calculating ARV
Now that you know what to look for to maximize the ARV of your fix and flip, it’s time to dive into the mistakes you should avoid:
Making Too Many or Too Little Adjustments
One of the biggest mistakes you can make when calculating your after-repair value is making too many or the wrong adjustments to the values. If you chose to use comps that are larger than your property, you can fail to adjust values appropriately and end up overestimating your ARV, causing you to lose money.
Using the List Price
A common mistake among fix and flip investors is using the listing price of comparable properties to estimate their ARV. Often times, list prices do not reflect the true ARV of a property since sellers can list at whatever disclosed price they so choose. To avoid this mistake, it’s best to focus on comps that have actually sold and are not merely listed on the market.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs.Connect with us todayto discuss your next real estate investment.