What is ARV and What is its Importance in Wholesaling?
You’ve heard me talking about ARV and why it’s essential to ensure you’re doing it correctly. And while this is a crucial aspect to wholesaling, there are still those new to the industry that might not know why it’s important and how to do it the right way.
I’m going to deeper into what ARV is and why it’s so important in wholesale real estate.
What is ARV?
The after-repair value is a crucial metric for real estate investors who want to purchase and renovate properties. It represents the projected value of a property after all of the necessary repairs and modifications have been completed. This helps investors determine an expected selling price and assesses the potential profitability of that property.
For a wholesaler, when we look at properties that are distressed, we want to determine an appropriate price for the homeowner. Being able to calculate the ARV properly means we aren’t overpaying or overcharging on a property, which also means we have less risk of having our contract canceled.
How to Calculate ARV
Now let’s get down to the nitty-gritty of how to actually calculate ARV. There are a few different ways to approach this, but the most common method is using the average price per square footage or a comparable property in the area, and then multiplying that by the square footage or meters of the property you’re looking at:
ARV = average per square footage/comp x square footage/subject property
As an example, if your average price per square foot in the target area is $100 and your subject property is 1,500 square feet, your ARV would be $150,000.
Another factor that you should consider when calculating your ARV is the cost of repairs or renovations that are needed to bring the property up to standard. One of the most common mistakes new wholesalers make is not including the cost of repairs when they calculate ARV.
Again, this is a crucial part of calculations because you need to subtract those costs from your ARV to determine the maximum purchase price you’re able to offer to a potential buyer. Something to also keep in mind is that calculating the ARV isn’t an exact science; the whole point of doing this is to ensure that you’re hitting the correct pricing for your subject property.
This is why understanding value and potential is so important because then you can take into account many of the different variables that make up a property, such as age, location, or even amenities.
Calculating the ARV can seem daunting at first, but once you get the hang of it, it gets easier and easier. If you’re looking for even more information on ARV or comping, make sure you subscribe to my Straight Outta Compin’ series or come join us in AstroFlipping to get even more real-time guidance.