What Does ARV Stand for in Real Estate and How to Calculate It?

If you are a real estate investor, you may have come across the term ARV, which stands for after repair value.

But what does it mean and how can you use it to evaluate potential deals?

An image of a a house being sold
Image of house on sell [PHOTO COURTESY OF REAL HOMES]
In this article, we will explain the meaning of ARV, how to calculate it, and why it is important for real estate investing.

What Is ARV in Real Estate?

ARV in real estate is short for after repair value, or the estimate of a property’s value after all repairs and upgrades are completed.

Property Disputes Lawyer
Property Dispute Lawyer [PHOTO COURTESY OF LITTLEJOHN]
It is the sum of the cost of the property and the value of the repairs.

Knowing this key real estate metric is especially helpful to investors and lenders because it calculates the margin between the “as-is” value of the desired investment property and the value of a developed property that has been completely renovated.

How to Calculate ARV in Real Estate?

To calculate ARV in real estate, you need to follow these steps:

An image of a real estate agent
Real estate agent [photo courtesy of PInterest]
  1. Estimate the as-is value of the property.

This can be done by hiring a professional appraiser, or by examining comparable properties listed for sale.

When looking at comparable properties, it’s important to look for properties that have similar locations, sizes, ages, condition and other characteristics.

  1. Estimate the cost of repairs and renovations.

This can be done by hiring a contractor, or by using online tools and calculators.

You need to consider all the necessary improvements that will increase the value of the property, such as roofing, flooring, painting, plumbing, electrical, landscaping, etc.

  1. Add the cost of repairs and renovations to the as-is value of the property. This will give you the ARV of the property.

The formula for ARV is:

ARV = Purchase price + Value of renovations

Why Is ARV Important for Real Estate Investing?

ARV is important for real estate investing because it helps you determine whether a deal is worth pursuing or not.

By knowing the ARV of a property, you can compare it with the purchase price and the cost of repairs and renovations, and see if there is enough profit potential in the deal.

ARV can also help you decide which exit strategy is best for your investment.

a real estate agent
Real estate agent [PHOTO COURTESY OF NERDWALLET]

For example, if the ARV is significantly higher than the purchase price and the cost of repairs and renovations, you may opt for a fix-and-flip strategy, which involves buying a property, renovating it, and selling it quickly for a profit.

On the other hand, if the ARV is only slightly higher than the purchase price and the cost of repairs and renovations, you may opt for a buy-and-hold strategy, which involves buying a property, renting it out, and generating passive income over time.

ARV can also help you secure financing for your investment.

Lenders often use ARV to evaluate your loan application and determine how much they are willing to lend you.

Lenders typically lend up to a certain percentage of the ARV, depending on their risk appetite and lending criteria.

Conclusion

ARV stands for after repair value in real estate, which is an estimate of what a property will be worth after all repairs and upgrades are completed.

To calculate ARV, you need to estimate the as-is value of the property, the cost of repairs and renovations, and the value of repairs and renovations.

ARV is important for real estate investing because it helps you evaluate potential deals, choose an exit strategy, and secure financing.

Leave a Comment