How to Calculate Your Own ARV and Why it Matters
- Determine the property’s current value—also known as its “as is” value.
- Estimate what the approximate value of the property will be once the renovations have been completed.
- Compare the property’s predicted value to the value of similar properties that have recently sold or that are listed for sale in the area.
The ARV calculation formula
After determining the above values, insert them into this formula to determine the after repair value of the property.
The After Repair Value (ARV) Formula:
The ARV formula for real estate investing involves taking the purchase price of a property and adding it to the value of your renovations in the area’s market. It can be written out as follows: ARV = (Property’s Purchase Price) + (Value of Renovations in Local Market)
Why calculating your ARV is important
The after repair value of a property is important for real estate investors—especially fix-and-flip investors—who are trying to determine how much they can eventually sell a property for. Knowing the ARV of a property gives them an idea of whether or not their project will be profitable. The after repair value also provides them with the information they need in order to make decisions on which exit strategy to use and what financing course of action to take. The ARV is also important for borrowing money, as it helps lenders determine the maximum loan amount they want to issue for real estate renovation projects. Some hard money lenders will loan 65 to 80 percent of the property’s after repair value. However, the exact amount will depend on multiple factors, such as the type of property, its condition, and the experience level of the investor.