Before investing in a fix & flip property, it’s crucial to research what home buyers are looking for in order to be competitive with other homes on the market. Additionally, it’s important to know how to determine what repairs and upgrades are needed to accurately estimate the after repair value (ARV).
Much of the work that goes into a fix & flip happens before construction even starts, so in order to maximize your ARV, you need to choose renovations that also optimize your ROI. In this blog, we’ll go over how ARV is calculated, as well as upgrades that can maximize your project’s ARV.
ARV and How It’s Calculated
The ARV is a property’s value after it’s been renovated. This can be determined by comparing with local properties that have a similar age, condition, or size that have recently been sold. The formula for ARV = (Property Purchase Price) + (Value of Renovation). Knowing how to calculate ARV and comparing recent local property sales will give you the data you need to set an accurate construction budget for your fix & flip. It can also give you an idea of the ROI you can expect.
Staying Within Budget
When deciding on changes for your investment property, it’s important to determine whether you’re renovating or updating. A renovation requires removing what is there and replacing it with something new, or adding on to the property. Conversely, an update means keeping the rooms and layout more or less the same but bringing new life to the property with things such as a paint job or new light fixtures. In order to stay within your budget, you should determine what changes exactly are needed to add value and will get the most foot traffic from potential buyers.
Upgrades to Maximize ARV
Much of the renovations or updates will depend on the property itself, but here are some upgrades that are commonly done to maximize the ARV of a property.
The kitchen is usually the first room investors consider renovating. Unlike a living room or bedroom, they tend to show their age more. When determining a renovation or update, review the floor plan to see if it’s as modern or efficient as it can be. Not every kitchen needs a complete overhaul, so consider whether you need a whole new design, or if a new paint job and updated fixtures will get the job done.
Replacing bathroom fixtures or updating old sinks and toilets are a sure way to increase your ARV. It’s likely a significant amount of your renovation will go to upgrading the kitchen and bathrooms, but depending on the as-is condition of these rooms, a re-painting also goes a long way in refreshing the space of a bathroom.
Flooring and Trim
The condition of the flooring in your property is one of the first thing prospective buyers look for. With all these updates, it’s important to still be considering characteristics of the local properties being sold. If they contain new flooring and your property has old carpet, your flip may sit on the market longer.
Strategic Lighting Changes
Replacing light fixtures is an effective and relatively inexpensive way to increase a home’s value. You don’t have to reinvent the wheel with this one. Consider sticking to classic, modern fixtures that aren’t too eclectic as to not turn away buyers who are turned off by a certain style.
With Fix & Flips, there isn’t a one size fits all solution to renovations or updates. It will really depend on the property itself, but planning your updates and learning about the local properties selling can give you an indication of how to best maximize your ARV.
Looking for Funding for Your Next Fix & Flip?
RCN Capital offers short-term and long-term financing options for real estate investors. Our ARV loan program offers financing for up to 90% of the purchase price + 100% of renovation costs, not to exceed 75% of the after repair value. Connect with us today to discuss your next fix & flip investment.