What is ARV or “After Repair Value”?

16

Will BarnardWill Barnard is a real estate rehabber out of Southern California.

In our interview with Will (5:48 minutes), we learn what ARV or After Repair Value is, and how a house flipper would go about calculating this value. We also learn about finding comps and why ARV is so important.

You can also learn more about Will’s company at Barnard Enterprises

Be sure to read and watch dozens of other real estate interviews from BiggerPockets today!

Subscribe to our mailing list

* indicates required Email Address * First Name Last Name
Share.

About Author

Joshua Dorkin (@jrdorkin, Google+) is the founder and CEO of BiggerPockets.

16 Comments

  1. I really enjoyed our time doing the short series of interviews Josh and look forward to the posting of the next one.

    If anyone has any specific questions regarding the topic of this interview, please do not hesitate to post your question here.

    Will Barnard

  2. Nakeya Womack on

    Josh, Will, thank you so much for the post. I myself am just getting into Real Estate Investing as a Wholesaler. I do not want to the mistake of giving a false exit value for my Investors, willing nor unwilling. My question to you Will is…is knowing the ARV enough to really know my market? If not, what info would I need to know to really know my market? Thanks so much!!!

    • Great question Nakeya!
      Knowing your market has to do with knowing how to run comps and make adjustments for comps that do not exactly match the subject property. For instance, if one comp has 100 square fet more than the other, you need to know how to make the adjustment properly and accurately. Same goes for ammenities such as pools, views, better streets/areas, etc. as well as bed/bath counts. A 3 bed 2 bath home (3+2) is not a comp for a 5+3, but it can be for a 4+2, you just need to know how much to add for that extra bedroom.

      Also, you should know your inventory levels. Many invetsors fail to recognize or know to look for this. It is a way to provide a good look into the short future and what your market is doing. For instance, if your farm area has 1000 current active listings and 4 months ago, that number was 700, you know know that inventory levels are rising (supply) which likely will result in price drops and vice versa. You also want to track sub-categories of inventory levels. For example, if 1000 qty is your current inventory, you should know how mny are short sales, how many are REO’s, and how many are standard sales.

      Lastly, you want to track DOM (days on market) Knowing how long your market is taking to liquidate standard sales gives you an idea of your hold time on yoru exit.
      Hope that helps!

      • hi.., I’m late to the party here, but hopefully I can still get an answer from @Will Barnard..

        you mentioned getting to know subcategories like ss, reo, std sales for ur target category that you plan to flip. just curious… how can this be helpful data when determining ARV or for your plans on flipping? distressed (ss, reo, prb) don’t comp out as the same for a retail (std, rehabbed std) prop, right?

  3. Oh my goodness!! Thank you so much Will!! That was wonderful. I would have never thought to look at supply and demand, but it makes since though. This is wonderful advice and I will apply it accordingly to my business transactions. Thanks again…. awsome stuff!!!!

  4. Kelvin, knowing subcategories of inventory does not necessarily help you determine an ARV, at least not on its own, but helps you make a necessary adjustment to ARV. What that means is let’s say 80% of your market inventory is REO and Short Sales. That leaves only 20% for standard sales and probates. If buyer demand is high, that means your “competition” on exit is low, thus you can likely obtain top of market pricing. Buyer demand is the major element in that calculation. What these subcategories mostly help determine is Days on Market (DOM). When you have a large majority of solds being distressed sales, particularly short sales, the DOM average climbs considerably which on the surface, could provide a false reading of DOM. Thus, by eliminating these from the solds and ONLY using standard sales, you can get a better feel for the average DOM in that area.

    Also, by separating the categories, you can get a better feel of your exit competition.
    Hope that answered your questions, if you ave more, please do ask.

  5. I am wondering if the 70% rule is really working out for people? I have flipped homes since 1998 but haven’t used this rule. I have a home I just closed on yesterday. ARV is $340,000. I picked up the home for $220,000. It is a smaller rehab job – about $40,000 – and I expect to make around $60k on the deal. According to the 70% calculator I would need to have picked up this home for $138,000 – which would profit me over 140k (which would be nice, I admit…)

    I am thinking the 70% rule applies more to smaller purchase prices? In the Portland market most of the homes we buy to flip are 150,000 plus.

    I appreciate the input – just wondering about that…

    • My calculations show the 70% rule in your scenario would have meant pay no more than $198000. 70% of $340000 is $238000 – $40000 for repairs gives a max purchase price of $198000. But this is a rule of thumb for quick analysis. Factors that play a major part of that calculation are cost of money and profit margin. What are you expecting to NET from that $80000 difference?

  6. Samori Diallo on

    Josh, Will, thank you for this post. I am currently in my education phase, soon becoming a wholesaler. Can you please clarify the following for me:
    1. You didn’t mention thoroughly inspecting the physical condition of the home as a component of your arv calculation. How accurate can an arv analysis be without going out and seeing the home yourself or sending a trusted inspector?
    2. How does one go about finding out what the inventory levels and sub-categories are in a target market? Do we get this information from Real estate agents, checking the mls, or by some other means.
    3. Lastly, how does one learn to make the adjustments when doing comps for homes that are not exactly the same makeup? Is it something you learn over time from doing it, or is there training on that anywhere? I believe that is a crucial skill to master. Thanks! I look forward to your reply.

Leave A Reply

css.php