What is an ARV in Real Estate + How to Calculate
If someone wanted to make money flipping or wanted to do the BRRRR method for a Buy & Hold investment, then understanding what is an ARV is a necessity!
What is an ARV? After Repair Value (ARV) is the property’s value after a property has been repaired, improved, or renovated. The formula to calculate the ARV is the property’s initial value plus the value of renovations.
What is a Good After Repair Value?
The way to determine a fair and accurate ARV is by researching the nearby and recently sold comparable properties (also known as “comps”).
Real estate professionals that know how to estimate the ARV gives them an idea of how much to list a house. Hence, investors can calculate their maximum offer price derived from accurately estimating the ARV.
Why is ARV Important?
The 70 Percent Rule The 70 percent rule is a simple calculation to give an investor a general idea of how much the maximum purchase price should be—the formula to calculate this rule’s maximum purchase price is the ARV multiplied by 70%.
House Flipping Taxes Short-term capital gains tax is usually higher than long-term capital gains tax. Therefore, it’s essential to consider the estimated tax when determining a purchase price for a flip.
The Loan To Value Ratio (LTV) is a percentage of a loan to the current market value. Therefore, an ARV is used to determine an upper limit that an investor could sell a house for while LTV relates to financing and getting a loan.
LTV vs. ARV
How To Fund A Real Estate Investment
If you want to start flipping houses, you’ll most likely have to purchase it with cash! Motivated sellers, such as absentee owners or those in foreclosure, want to close on a property as soon as possible
A hard money lender can be an individual or a company. However, they operate a little differently than a bank. Hard money loans last for a shorter term compared to a traditional loan, such as 6-12 months, and also have higher interest ranging from 12%-15%!
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