After Repair Value (ARV) Calculator
Key Takeaways
- After repair value (ARV) is an estimate of a property's fair market value after renovations, repairs, and improvements are completed.
- ARV is useful for house flippers and BRRRR investors who need to estimate resale value, refinance potential, or post-renovation property value.
- An ARV calculator uses inputs like purchase price and renovation value to estimate a property's value after repairs.
- By using this ARV calculator, you can better evaluate whether a renovation project may leave enough room for profit after purchase costs, repair costs, holding costs, and selling expenses.
After Repair Value (ARV)
When evaluating an investment property, using rental metrics and analytics is crucial for making informed decisions. Metrics provide a clear picture of a property's current or potential financial performance, helping investors gauge profitability and mitigate risks. After repair value (ARV) is one metric that can help investors optimize their portfolios, ensuring they make the most out of their real estate ventures. Using an online calculator for ARV can make the calculation simple and quick.
What is After Repair Value (ARV)?
After repair value (ARV) is the fair market value of a property after a rehabber has completed all renovations, repairs, and improvements. ARV is most often relevant for house flippers, who buy properties below market value with the intent to rehab the property, increase its value, and then ultimately sell it for a profit. Good flippers can achieve an ARV that is significantly higher than the price they originally bought the property at. However, ARV is relevant to other real estate professionals as well, especially those interested in knowing a property's estimated value after getting the property appraised post-renovations.
After Repair Value Formula
The formula to calculate ARV is very simple:
ARV = Purchase price + Renovation value
A property's after repair value (ARV) is simply the current property value (in this case the purchase price, since that is its market value at the onset) plus the value of the renovations or repairs completed by the flipper. Adding these two values together gets you an estimate of a planned flip's after repair value.
ARV Formula Breakdown
| ARV Component | What It Means | Formula or Example |
|---|---|---|
| After repair value (ARV) | The estimated fair market value of a property after renovations, repairs, and improvements are completed. | ARV = Purchase price + Renovation value |
| Purchase price | The amount paid, or expected to be paid, for the property. | Purchase price or listing price |
| Renovation value | The combined value added by repairs, rehabs, and improvements. | Kitchen updates, flooring, paint, roof repairs, curb appeal improvements, and more |
When to Use ARV
As mentioned above, ARV is most used by house flippers who need an estimate of what a property might sell for (and therefore, what kind of profits they can expect) after the rehab stage has been completed. The profitability of a flip depends on its ability to appraise above its former purchase price, so ARV is a very relevant metric for flippers in any real estate market.
However, ARV may be relevant to other kinds of investors, too. For instance, a long-term real estate investor might be interested in knowing their property's ARV so they can adjust rent prices accordingly after making rehabs.
In fact, BRRRR investors use this exact strategy. The BRRRR method of real estate investing relies on a property appraising for more than its original purchase price so that the investor can refinance the loan favorably. Therefore, BRRRR investors might also be highly invested in the ARV possible for their project.
How to Use the ARV Real Estate Calculator
Although the calculation is very simple, using REI Grove's after repair value calculator can allow you to quickly see the change in results when playing around with a variety of purchase prices and potential rehabs.
Below, we briefly describe each input and output in more detail.
Inputs
Here are the inputs you'll need to use the calculator:
- Purchase price
- Renovation value
A property's purchase price is what you initially paid for it (or expect to pay for it). If you haven't bought the property yet, the listing price is a good estimate. However, you could end up paying more than the listing price, depending on demand and how eager the seller is to get the property off their hands. Given that many flippers and BRRRR investors are looking for below market value properties, using the listing price will usually get you a conservative estimate.
Renovation value is the combined value of all the rehabs, repairs, and renovations you complete on a property before selling it. To find the renovation costs, start by making a list of rehabs for the property. Common rehabs for flippers include:
- Kitchen and bathroom renovations (updating fixtures, appliances, cabinetry, and countertops)
- Flooring replacements
- New paint
- Roof repairs
- Curb appeal enhancements (landscaping, siding, and windows)
- Electrical and plumbing updates
The more difficult part is estimating what these rehabs are worth. There are a few different methods for this, depending on how far you are in the flipping process and whether you want a quick estimate or a detailed breakdown:
- Get quotes from contractors. This involves calling local contractors and asking for estimates for the work needed for the rehabs you have planned. Remember to include the cost of materials, labor, permits, and other hidden costs.
- Comparative market analysis. If there are comparable properties nearby who have performed the same renovations that you're planning (e.g., all the homes in a neighborhood are getting new roofs), you can look at these comps to estimate the value of the improvements to your home.
- Area breakdown. If you're planning on installing new flooring, for example, you can find out the average cost per square foot and then estimate totals for the total area.
It's recommended to add a 10-20% buffer as a contingency budget to account for unexpected expenses or overages during the renovations.
Outputs
After you've entered your purchase price and renovation value into the calculator, it will output your ARV. This value can be used to plan for a sale/disposition event (for a flip), a refinance (for a BRRRR investment), or to adjust rent rates for long-term rental property investments.
How to Interpret Your ARV
What is a good after repair value for a real estate investment?
What is considered a "good" ARV in real estate depends on the investor's strategy. Typically, investors look for properties where the ARV offers a strong potential for profit after accounting for all costs, including purchase price, repair costs, holding costs, and selling expenses. Many real estate investors follow the 70% rule, which says that the purchase price of a property should not exceed 70% of the ARV, minus the cost of repairs.
For example, if the ARV of a property is $200,000, and the estimated repair costs are $30,000, the maximum purchase price should be 70% of the ARV minus $30,000, or $110,000.
There's no standard ARV that's expected or best for all properties. A "good" ARV ensures that after all expenses are covered, the investor can still make a profitable return.
70% Rule Example
| ARV Scenario | Amount |
|---|---|
| Estimated ARV | $200,000 |
| 70% of ARV | $140,000 |
| Estimated repairs cost | $30,000 |
| Maximum purchase price | $110,000 |
Conclusion
After repair value (ARV) is a crucial metric for real estate investors when evaluating potential profits on everything from fix-and-flip projects to BRRRR investments and other long-term real estate investments. By accurately estimating ARV and considering all related costs, investors can make smarter purchasing decisions and maximize their returns. REI Grove's ARV calculator can help you get a quick and easy estimate that you can use to make more informed investing decisions.
FAQs
What is ARV in real estate?
After repair value (ARV) is the fair market value of a property after a rehabber has completed all renovations, repairs, and improvements.
How do you calculate ARV?
The ARV formula is Purchase price + Renovation value.
What inputs do I need for an ARV calculator?
To calculate ARV, you'll only need a purchase price and renovation value.
What does purchase price mean in an ARV calculator?
Purchase price is the amount initially paid, or expected to be paid, for the property. If the property has not been purchased yet, the listing price can provide an estimate.
What does renovation value include?
Renovation value is the combined value of all rehabs, repairs, and renovations completed on a property before selling it. This may include kitchen updates, bathroom updates, flooring, paint, roof repairs, curb appeal, plumbing, and electrical updates.
How can investors estimate renovation value?
Investors can estimate renovation value by getting quotes from contractors, reviewing comparable market data, or breaking down costs by area, such as cost per square foot for flooring.
What is the 70% rule?
The 70% rule says that the purchase price of a property should not exceed 70% of the ARV, minus the cost of repairs.
What is a good ARV?
There is no standard ARV that is best for all properties. A good ARV depends on the investor's strategy and should leave room for profit after purchase price, repair costs, holding costs, selling expenses, and other costs are accounted for.
Who uses ARV?
House flippers commonly use ARV, but BRRRR investors, long-term rental investors, and other real estate professionals may also use it to estimate post-renovation property value.
Does ARV equal profit?
No. ARV estimates post-renovation value, but investors still need to subtract purchase costs, repair costs, holding costs, selling expenses, financing costs, and other project costs to estimate profit.