A Comprehensive Guide to Calculating ARV for Fix & Flip Financing
When it comes to fix and flip financing, accurately determining the After Repair Value (ARV) of a property is crucial.
The ARV serves as the estimated value of a property after it has undergone necessary renovations, which is a key factor in determining loan amounts, profit potential, and investment decisions.
In this blog post, we will provide a step-by-step guide on how to calculate ARV for fix and flip financing, empowering you to make informed decisions and maximize your returns.
Step 1: Conduct Market Research
Before you embark on the ARV calculation process, it's important to gather information about the local real estate market. Analyze recent sales data and trends in the area to get an understanding of property values. Look for comparable properties that are similar in size, location, and condition to the one you're considering for your fix and flip project.
Step 2: Identify Comparable Sales (Comps)
Identifying comparable sales, or comps, is crucial for calculating ARV accurately. Look for recently sold properties that are similar to the subject property in terms of location, size, style, condition, and features. Aim for a minimum of three comps, but the more, the better. Pay attention to properties that underwent renovations similar to those you plan to undertake.
Step 3: Analyze the Comparable Sales
Once you have identified your comps, carefully analyze each property to determine their similarities and differences to the subject property. Look at features such as square footage, number of bedrooms and bathrooms, amenities, and overall condition. Take note of any unique selling points that may affect the property's value positively or negatively.
Step 4: Adjust Comps for Differences
Since no two properties are identical, it's essential to make adjustments to the comps to reflect any differences compared to the subject property. For example, if a comp has an additional bathroom, you would subtract the estimated cost of adding a bathroom from its sale price. Similarly, if a comp has a larger square footage, you would adjust its sale price based on the average price per square foot in the market.
Step 5: Calculate the Average ARV
After making adjustments to each comp, add up the adjusted sale prices and divide the sum by the number of comps. This will give you the average ARV. Remember to factor in market conditions and any unique considerations that may impact the property's value, such as proximity to schools, shopping centers, or transportation hubs.
Step 6: Seek Professional Appraisal
While the steps mentioned above provide a general framework for calculating ARV, it's always advisable to seek a professional appraisal. An experienced appraiser can provide a more accurate assessment of the property's value, taking into account all relevant factors. A professional appraisal adds credibility to your ARV calculation and helps you make informed decisions when seeking fix and flip financing.
Calculating the ARV is a critical step in fix and flip financing. By conducting thorough market research, identifying comparable sales, making necessary adjustments, and seeking professional appraisal, you can arrive at a reliable estimate of the property's After Repair Value.
Accurate ARV calculations empower you to secure appropriate financing, assess potential profit margins, and make informed investment decisions.
Remember, each fix and flip project is unique, and the more diligent and accurate you are in calculating ARV, the better equipped you'll be to succeed in your real estate endeavors.
We offer free ARV calculations for our clients as well as preapprovals based on these ARVs. For more information please reach out using the contact information below.