📋 Table of Contents
What is ARV?
After Repair Value (ARV) is the estimated market value of a property after all planned renovations and improvements have been completed. It's a critical metric for fix-and-flip investors and BRRRR strategy practitioners who need to determine the maximum purchase price and renovation budget.
ARV Calculation Methods
There are several proven methods to calculate ARV, each with specific use cases and accuracy levels:
1. Comparable Sales Method (Most Common)
The comparable sales approach is the most widely used and reliable method for estimating ARV:
Comparable Sales Formula
Steps for Comparable Sales Analysis:
- Find 3-5 recent sales of similar renovated properties (within 6 months)
- Match property characteristics: size, bedrooms/bathrooms, lot size, condition
- Adjust for differences: location, features, timing
- Calculate price per square foot for each comparable
- Use conservative estimates - take the average or slightly below
Comparable Sales Example:
Target Property: 1,500 sq ft, 3 bed/2 bath
Comparable Sales:
• Comp 1: $180,000 ÷ 1,520 sq ft = $118/sq ft
• Comp 2: $175,000 ÷ 1,480 sq ft = $118/sq ft
• Comp 3: $185,000 ÷ 1,550 sq ft = $119/sq ft
Average: $118.33/sq ft
ARV Estimate: $118 × 1,500 = $177,000
2. Cost Approach Method
The cost approach is better for unique properties or when comparable sales are limited:
Cost Approach Formula
When to Use Cost Approach:
- Unique properties with few comparables
- New construction or major renovations
- Rural areas with limited sales data
- Custom homes with unique features
Common ARV Mistakes to Avoid
1. Using Outdated Comparables
Real estate markets change quickly. Always use sales from the last 3-6 months, preferably within 3 months.
2. Over-Improving for the Neighborhood
Don't renovate a property beyond what the neighborhood can support. Research the highest sales prices in the area.
3. Ignoring Market Conditions
Factor in current market trends - rising, falling, or stable prices affect your ARV calculation.
4. Using Listing Prices Instead of Sold Prices
Always use actual sold prices, not asking prices. Listing prices can be 5-15% higher than final sale prices.
5. Not Accounting for Holding Costs
Consider how long the property will take to sell. Market conditions may change during your holding period.
Step-by-Step ARV Example
Let's work through a complete ARV calculation for a fix-and-flip property:
Property Details:
Property: 1,200 sq ft ranch home
Bedrooms/Bathrooms: 3 bed/2 bath
Lot Size: 0.25 acres
Current Condition: Needs full renovation
Neighborhood: Established suburban area
Step 1: Research Comparable Sales
Found 4 recent sales of renovated properties:
| Property | Sale Price | Sq Ft | Price/Sq Ft |
|---|---|---|---|
| Comp 1 | $165,000 | 1,180 | $140 |
| Comp 2 | $172,000 | 1,220 | $141 |
| Comp 3 | $158,000 | 1,150 | $137 |
| Comp 4 | $168,000 | 1,200 | $140 |
Step 2: Calculate Average Price per Square Foot
Average: ($140 + $141 + $137 + $140) ÷ 4 = $139.50/sq ft
Step 3: Apply Conservative Estimate
Use $138/sq ft (slightly below average for safety margin)
ARV = $138 × 1,200 sq ft = $165,600
Step 4: Round Down for Safety
Conservative ARV: $165,000
Key Takeaways
🎯 Essential ARV Points:
- Use recent comparable sales (within 3-6 months)
- Match property characteristics as closely as possible
- Be conservative in your estimates
- Consider neighborhood limits - don't over-improve
- Factor in market conditions and holding costs
- Get professional appraisals for expensive projects
Accurate ARV calculation is the foundation of successful fix-and-flip investing. Take time to research thoroughly and always err on the side of caution. A conservative ARV protects your profit margins and reduces investment risk.
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