7 steps to accurately run ARV comps for your next BRRRR or flip
When thinking of using the BRRRR (buy, rehab, rent, refinance, repeat) method or purchasing a fix-and-flip for the first time, it may be intimidating trying to figure out what the correct ARV (after-repair value) is for the property you’re considering. Since the ARV is such an important factor when considering whether to pursue an investment, it’s imperative that this analysis is done correctly. You would definitely hate to pass on a great deal because your ARV was too low or that your pursed an investment only to find out that your estimated ARV was too high. That’s why I don’t depend on anyone but myself or a licensed appraiser to calculate the ARV of a property. In this article I’ll show you my preferred method of calculating the ARV on your own so that you can feel confident when submitting an offer or passing on a deal.
Understanding our goal
The most important part of estimating the ARV is using comparable properties that have recently sold near your subject property. When determining the ARV of a property we need to use properties that have sold that are similar or comparable to what our property will look like in the future. So, if our property has three bedrooms, two bathrooms and a garage we would search for comparable properties (comps) with the same features. Your goal is to then generate an accurate price per square foot of comparable properties that have sold within the last six months. If there is absolutely nothing that sold comparable then you can begin to widen you’re search area and/or widen the time frame sold to 12 months.
An example will make things more clear
I am going to use a real-life example of one of our own properties so that you can follow along and I’m going to use Zillow as the website of choice to source the data we need to run our analysis. Our property address is 8115 Free Ave, Jacksonville FL 32211. Click here to download the excel spreadsheet I created with formulas so that you can easily plug in the details and calculate your own ARV. Please note that the excel spreadsheet I am providing has the comps we ran as of February 2021. As we all know, comps continue to change as more properties are sold.
1) Open excel and write the property’s details at the top
Our property has 3 bedrooms, 1 bathroom, and 1,064 square feet. The first column will have the address, then bedrooms, bathrooms, and number of square feet.
2) Find the property you’re analyzing on Zillow
In the property detail page you’ll see that Zillow has a section called “neighborhood details” where it says the name of the neighborhood the property is in. Close the property detail page and copy/paste the neighborhood name and city into Zillow’s. Our property is in Woodland Acres, Jacksonville, Florida, so that’s what we will search. If your neighborhood is very small, you can click the “remove boundary” button to allow nearby neighborhoods to appear as well.
3) Select the correct filters
These are the filters we select on Zillow's search engine:
• Make sure to select “Sold” as the filter
• Leave “Price” alone
• Select the number of bedrooms (3) and bathrooms (1)
•For “Home type” unselect everything except “Houses”
• Under “More” enter in the range that matches closest to the number of square feet the property has. In this case it’s 1,000 to 1,250. (If you don’t see many results and the property’s square feet are close to one of the ranges you’re selecting, you can widen the search a bit.) And finally scroll down and select “sold in the last 6 months” drop down.
• Select “Done” at the bottom of this window. Now you’ll see all of the properties that can potentially be an ARV comp for the subject property.
4) Find comparable rehabbed properties
This is one of the most important parts. It’s a bit time consuming, but it’s extremely important that you use the correct properties as comps. You cannot get the price per square foot of every single property that sold with the criteria above, because you’ll potentially be comparing against distressed properties as well. You need to filter through the properties and find comparable ones. Order your results by newest sold so you can first see what just sold. If you plan on performing a full rehab then only select the properties that have been fully rehabbed. You have to click on each sold listing and quickly scroll through the pictures to see if the property has been rehabbed. If it is not rehabbed, ignore it.
5) Plug in the properties that are comparable into your excel sheet
For the properties that have the same number of bedrooms, bathrooms, square footage range, and have a similar rehab to what you plan on doing, add them to your spreadsheet. Each property will go on a new row and you should aim to have at least three to four comps for a more accurate ARV. You’re also going to include the price the comparable properties sold at. In the last column you will have a very simple formula that divides sold price by number of square feet. This will provide you with the price per square foot of each comparable property that sold.
6) Get the average price per square foot
Time to do some simple math here. Add up all of the price per square feet of each comp and divide by the number of properties you have. Adding up the price per square feet of each comp gives us $360. In this case we have 3 number comps. Divide $360 by 3 and you get the average price per square foot: $120. Another option we like to do is getting the median price per square foot here as well so that you can have a range of an ARV, since analysis is rarely ever exact.
7) Multiply the average price per square foot by the number of square feet of the subject property
The final step! One more simple equation: Average price per square foot multiplied by the number of square feet. In our case we are going to multiply $120 by 1,064, which equals $127,827. If you want to go one step further then do the same calculation with the median price per square foot. In our case that is $125 multiplied by 1,064, which equals to $132,574. Our estimated ARV range for this single family home is between $127,827 and $132,574!
You’re done! Seems simple, right? This is not rocket science by any means. It just takes a little bit of time to get it done and some basic math. But it’s important because you want to feel confident that you have the most accurate ARV possible, since it’s your money on the line. I hope you found this quick tutorial on how to easily calculate an ARV helpful.
Thanks for reading!
I’m Elenis. My husband and I acquire rental properties in Jacksonville, FL with the goal of building generational wealth for our family. Visit our BiggerPockets blog to read other articles about how we acquired our portfolio and how we self managed from out of state. Feel free to ask me any questions you have about rental property investing or real estate, I’ll try to answer as best as I can.
This article is for informational and educational purposes only. This information is not meant as financial, investment, or legal advice. While the information provided is believed to be accurate, it may include errors or inaccuracies. Consult a licensed financial advisor or broker before making any and all investment decisions.