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In real estate investing, particularly fix and flip investing, choosing the right property to invest in can determine if the project will be a profitable flip. So before selecting a property to invest in it’s important to know what the value of the home will be after renovations, or the After Repair Value (ARV).
What Is ARV?
Simply put ARV is exactly what it sounds like. ARV is the estimated future value of a property once all the renovations have been completed. With this in mind, a $200k renovation to a home does not mean the home’s value will automatically go up $200k in value.
How to Determine the ARV?
To determine the ARV an appraiser will first evaluate the distressed property to determine its current ‘As Is’ value. Second, with the rehab list provided by the investor, the appraiser will also determine the approximate value of the property after those renovations have been completed. Finally, with the rehab list still in hand, the appraiser will look at similar properties in the surrounding area that are comparable to the distressed property after the renovations have been completed. Based on those comparable properties and the similarities to the property, the appraiser will then determine the ARV.
Typically private lenders, like RCN Capital, will look into the ARV when determining if a loan scenario is a right fit for their company, and to help determine the max loan amount they can lend up to by having an appraisal done on the distressed property.
The After Repair Value (ARV) Formula:
ARV = (Property’s Purchase Price) + (Value of Renovations in Local Market)
Why Should You Calculate the ARV?
Determining the ARV is significant because it provides real estate investors with a general idea of what the property is worth now, the value of the renovations and, what they will be able to resell the home for once the renovations are complete. What all of this really comes down to is to determine if the investor will be profitable after flipping the property.
ARV is also used by private lenders to help determine the maximum loan amount for the fix and flip properties. For example, many lenders, including RCN Capital, will only lend up to 70-75% of the ARV. Once you determine the ARV of the property you can generally map out the loan amount your lender can provide which helps investors in planning their project and getting together their team.
As a direct private lender, RCN Capital is here to help you fund your next fix and flip project. Our competitive Fix and Flip ARV Loan Program provides up to 85% of the purchase price and 100% of the renovation costs, just not to exceed 75% of the ARV. Plus our experienced loan officers and in-house underwriting and legal teams help the process run smoothly and quickly. We look forward to working with you on your next fixer-upper!