After Repaired Value (ARV)
07/27/2009 - By Brian Jarrett 
ARV Calculation
Percent After Repaired Value (% ARV) is an important consideration when searching for investor properties. It is important to understand what % ARV is based on in order to perform due diligence on the property being considered.
For investors, % ARV is an important figure to understand. ARV stands for After Repaired Value, which is essentially the market value after all repairs are complete. While it is simple to calculate, it gives an excellent idea of what an appropriate offer is for purchasing a property. It is also the key figure in obtaining Hard Money Loans that are based off the property value rather than the buyer’s credit score. The rule of thumb for purchasing with Hard Money is not exceeding 65% ARV. Whether or not you use Hard Money, you need to figure out especially in a declining market like we are currently in. This gives you enough cushion in case values continue to fall for a while. The key is to realize that declining values are not necessarily a bad thing, as long as you use them to your benefit to negotiate a better deal.
We have automated the % ARV calculation based on the market value and estimated repairs that the seller has input. Keep in mind, the calculation is only as good as the information that is put in by the seller. This is the reason why it is very important for any investor to understand % ARV so that they can perform their own due diligence and double check the advertised values.
To calculate ARV, perform the following:
• Comparables (Comps): You should start by researching recent sales from the last 3-6 months. Normal markets would require a 6 month window for comps. In a declining market you should use more recent comps. NOTE: Beware of automated calculated values that some websites provide. These are notoriously unpredictable. However, most of these sites also include access to comps that you can use for a sanity check.
• Repairs: Have the property inspected and come up with a realistic value for what the repairs will cost you. Keep in mind that even for the most experienced rehabber, repair costs often go over budget. Make sure you leave enough cushion for the unknown.
• Asking/Offer Price: Use the seller’s asking price. However, adjust as needed to account for a lower offering price.
Percent ARV takes into account the Asking Price plus Repairs as a percentage of the After Repaired Value.
Here’s an example of how to calculate ARV:
Comps show a value of $100K
Asking Price is $50K
Estimated Repairs are $10K
%ARV = [ (Price + Repairs) / After Repaired Value] x 100%
In this case %ARV = [($50K + $10K)/ After Repaired Value] x 100% = 60% ARV
In the above example, 60% ARV is an excellent deal and leaves the remaining 40% for PROFIT (minus buy/sell/carry costs)… assuming the numbers used were accurate! That is why it is important to take all of these values into account and adjust based on actual market conditions. Percent ARV gives investors a good “feel” of the deal that they are looking at. Also keep in mind that many times you see an advertised investor property on other websites, % ARV is often misused by leaving out the repairs. What good is a property at 30% ARV if it will take the other 70% and then some to repair the house? Make sure that you know how they are calculating it.
REIquest provides advanced sorting and email alert functions to allow investors to save their valuable time and get notifications on deals that meet their criteria. We have many custom search criteria such as %ARV, Creative Terms, and more. You can also eliminate property types such as auction properties that are often advertised at low opening bids. Put your Real Estate Investing on auto-pilot!
To your success!
Brian Jarrett
President
REIquest.com
