What is After Repair Value?(ARV)
By Flat Fee By YOU Team
Investing in Real Estate, talking in particular about flipping properties, often requires a purchased property to be rehabilitated someway. Sometimes it’ll be cosmetic work and repairs, at other times it’ll be extensive rehab and remodel work. The investor who wants a successful fix & flip or fix-to-rent must take the following into consideration:
Can the investor do the repair work or will he/she be able to locate and properly supervise contractors to get the work done?
Did the investor accurately estimate the cost of all remodel and repair work?
Is there an accurate estimate of the ARV of the property?
These steps must be completed accurately. In order to invest and flip for a long time, you must calculate the ARV correctly and assure that the costs to refurbish the property don’t run over estimates. Many investors know both their areas and markets well and feel confident in their ability to calculate the value of the property when they’ve completed the renovations.
If you aren’t sure, you can get a real estate professional to do a Comparative Market Analysis on the home thinking if all the work was already completed. You can also use an appraiser, but you can do as well working with a real estate person who knows about their business and area. You can also ask a REALTOR.
Considerations for ARV in Fix & Flip Investing
The Fix & Flip project is the highest profit margin short term real estate investment strategy. Buying right at a deep discount is required on the front end. At the other end, there is the knowing you will have a buyer at the price you need for your desire profit.
The fix stage is in between those two ends and it is where the profits get great, but the risks are higher.
Buy at discounts and get the materials estimates right. Don’t only work with the big box home stores, but also liquidators and rehab stores.
Get to know your contractors and their capabilities. You need to supervise to be sure that you’re getting quality work that will be done on time and within the budget.
Budget based on your buyer. Keep the materials in the “acceptable” range if you’re going to be selling to a rental property investor. Upgrade to finishes that buyers want since you are competing in the marketplace.
ARV for Retail Fix & Flip is an Opportunity
New home builders have spent lots of years concentrating on apartment building, since that’s where the demand has been, so there are fewer new homes available. Meanwhile, existing homeowners have been holding onto their homes while values have been recovering.
If you can make the right deal on a fixer and add in some of the new features that buyers ask for, you can sell to a retail buyer at a higher margin that you would ever get from an investor.