ARV stands for After Repair Value and is one of the most critical measures in real estate investing. It is the value of a property after it has been renovated or improved. The calculation is simply-
Property’s Current Value + Value of Renovations = After Repair Value (ARV)
The calculation is commonly used with rehabbers who fix and sell properties. The measure is important because it helps determine the profitability and margins after repair and subsequently gives the investor an understanding on how much to purchase the property. ARV is calculating future value, so the measurement uses comparable properties in the area, known as comps. The standard metric is to take the average of three to six comparable properties sold in the last 90 days. From this, you get an average sales price and an understanding of what the property will sell for after renovation.
The common industry practice is to purchase properties at 70% of ARV this gives the investor some margin for repair cost and after-sale profit. For Paragon’s single-family home portfolio, we take a more conservative approach. Through our network of agents, we aim to acquire properties at 50-60 % ARV. This not only allows for higher profit and subsequent higher returns for our clients but also a safer margin of error in case any renovations are over budget.
