House Flipping? How to Determine Your After Repair Value (ARV)

House Flipping? How to Determine Your After Repair Value (ARV)
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Keep Your Projected ARV On Target With a Hard Money Loan

You’re a real estate investor with house flipping know how. You’ve done your research, have carefully followed the Washington real estate market. And now you’ve found what could be the ideal investment property and are ready to purchase.

But do you have a clear idea of the property’s projected After Repair Value (ARV)? A solid grasp of the ARV of any rehab project is critical to a successful flip, not only for loan purposes but to get an adequate sense of the potential return on your investment.

What, exactly, is After Repair Value? It’s the estimated value of a property after it has been fully renovated, an essential figure used by investors in fix and flip projects to calculate the spread between purchase amount and resale price.

Lenders typically determine maximum loan amounts in part on the ARV. The more knowledgeable you are about the time and costs it takes to improve a property, the better you’ll be able to communicate with your lender to get appropriate financing.

Note that as an investor, it’s important to understand the difference between ARV, “as is” (a property’s value in its present condition) and “market value” (the price at which a property will sell in an open market).

Here are five investment property ARV tips to get you on track:

5 Tips to Determine Your ARV

  1. Property characteristics: Compare your prospective property to other recently sold homes in the area using website sources like Zillow.com. Look at properties that are comparable in square footage, number of bedrooms, garage and outdoor space for a sense of value.
  2. Know your whereabouts: Go back to your real estate website sources and find properties that are close to the same public resources and amenities (schools, shopping, transportation) as your potential flip purchase. Get out your calculator and determine the average cost per square foot of homes in the area.
  3. Compare and analyze: A Comparative Market Analysis can provide valuable information, including photos and characteristics, about property sales in the neighborhood of your intended house flip. Ask your realtor for a CMA copy for use in helping to determine your ARV.
  4. Talk to a broker: For a small fee, you can attain a Broker’s Price Opinion from a realtor not involved in your property transaction. Inform the realtor of rehab plans for the property and ask that the BPO provide both an ARV and “as is” summary.
  5. Hire an appraiser: For a thorough review and report of your flip property’s “as is” and after repair values, you can invest in an appraiser. Do note that you may end up paying for two – yours as well as the lender’s.

Savvy Washington House Flippers Use Hard Money Loans

At Gregory M. Russell we’ve worked with Washington real estate investors for over 30 years. We understand the demands of house flipping and what it takes to ensure top return on your investment. Talk to us about how a hard money loan can help you make the most of your house flip. Call today. 1-888-477-0444.