If you’re working with real estate investors, you’ve probably heard the term ARV thrown around. But what exactly does it mean, and why is it so important? ARV, or After Repair Value, is critical in real estate investing, especially for fix-and-flip projects. It’s the estimated value of a property after all renovations and repairs are completed, and it plays a key role in determining whether a project will be profitable.
As a wholesaler lender or broker, knowing ARV is vital to helping your clients navigate the fix-and-flip process. By assisting your clients in properly calculating ARV, you can help them make smart decisions and get the highest returns. In this blog post, we're going to take a step-by-step look at what ARV is in real estate, how to calculate it, and why it's important for your clients' investments.
Let’s start with the basics. ARV stands for After Repair Value, and it is an approximate market value of a property when all repairs and renovations are done. With this understanding, a $200k rehab to a house does not necessarily mean that the value of the house will increase by $200k worth. It is an important calculation for real estate investors, especially fix-and-flippers, as it is a determinant of whether a project is profitable or not.
Why ARV Matters:
If you know ARV, you can assist your clients in making better investment choices and bypassing expensive errors.
To calculate ARV is not merely a matter of adding the renovation cost to the purchase price. It's a more complex process that takes a few steps. Here's how it goes:
The first thing to do is determine the current value of the property, or the "As Is" value. This is the value of the property in its present state, prior to any renovations.
How Brokers Can Help:
Second, your clients must project the cost of the renovations they intend to perform. This is everything from cosmetic renovations to extensive structural repairs.
How Brokers Can Help:
In order to ascertain the ARV, your clients must consider comparable properties (or "comps") within the locality. These are newly sold houses that are roughly the same size, condition, and location as the property once renovated.
How Brokers Can Help:
After you have the value of the property today, the renovation cost, and the value of similar properties, you can use this formula to calculate the ARV:
ARV = (Property’s Purchase Price) + (Value of Renovations in Local Market)
By following these steps, you can help your clients calculate ARV accurately and make informed investment decisions.
ARV isn't only crucial for investors—it's also a major consideration for lenders. Most private lenders, including RCN Capital, rely on ARV to decide how much they'll lend on a fix-and-flip project.
How Lenders Use ARV:
By assisting your clients in accurately computing ARV, you can facilitate their ability to get the money they require to finish their project.
As a broker, your role is imperative in assisting your clients in obtaining maximum ARV and making their project profitable. The following are some ways through which you can bring value to your clients:
Not all remodels are equal. Your clients must prioritize upgrades with the highest potential value, including kitchen and bath remodels, new flooring, and curb appeal enhancements.
How Brokers Can Help:
One of the largest influences on ARV is location. Your clients must find properties in highly desirable areas with high demand in the marketplace.
How Brokers Can Help:
The workmanship of the renovations can make a significant difference in ARV. Your clients need to hire skilled contractors who can produce quality work on time and within budget.
How Brokers Can Help:
At RCN Capital, we understand the importance of ARV in real estate investing. That’s why we offer fast, flexible financing solutions designed specifically for fix-and-flip projects.
Why Brokers Choose RCN:
Knowledge of ARV is critical to success in real estate investing, particularly for fix-and-flip ventures. As a private lender dedicated to supporting brokers and wholesale lending partners, we can provide you with the resources you need to guide your clients through the financing process and help them achieve their goals.
By partnering with reputable lenders like RCN Capital, you can assist your clients in gaining their maximum profit and reaching their real estate objectives. Interested in taking your brokerage to the next level? Get in touch with RCN Capital today and find out how we can assist you and your clients to be successful in the highly competitive market of real estate investing.