The ARV (after repaired value) on a house is one of the most important things to know when flipping houses. It is also one of the most important things to know when buying rentals or wholesaling properties. Many real estate investors have a really hard time determining the values on properties and rely on real estate agents or others to figure that out for them. As a real estate investor, you need to be able to determine the ARV yourself without having to rely on others. It is fine to confirm your values, but relying solely on another person is one of the best ways to get yourself into trouble. It is not easy to determine the ARV, as learning the market you are investing in takes a lot of work. If you want to be a successful real estate agent, it will take time and work.
What is the ARV?
ARV stand for after repaired value. The after repaired value is what a house will be worth after it is fixed up. The ARV assumes you will be selling the house on the MLS (multiple listing service) using a real estate agent. Selling the house on the MLS usually nets the most money to the seller. To determine the ARV, I always use MLS comps, and I need to sell houses the same way to get an accurate value. If you try to sell a house by yourself without an agent, you will not sell it for as much and should adjust your values accordingly.
Why is the ARV important when investing in any type of real estate?
I think it is obvious that knowing the ARV is vitally important when flipping houses. You make your money when you sell the property, and you must know what a property will sell for after you fix it up. What you pay for the property, how much you budget for repairs, and the type of financing you use can all depend on the ARV. If you are using hard-money lenders, they will only lend on a certain percentage of the ARV. It is hard to find properties with enough room to flip, and if you are off on the ARV, it can wipe out all of your profits.
The ARV may not seem important when buying rental properties, but it is. I want to get a good deal on any house I buy. Banks will also be more likely to lend to an investor if they are getting a great deal on a property. When you get a great deal on a rental, it helps in many ways:
- You walk into the deal with equity, increasing your net worth instantly.
- You make more money per month because your loan will have lower payments.
- You will have a lower debt-to-income ratio.
- With more equity, refinancing the property in the future will be easier. You may be able to get all the money you put into the property back after a refinance.
- If you ever need to sell the property, you will be in a much better financial position.
It is easy to buy rentals at full retail value, but one of the greatest advantages in real estate is buying below market value. I do that on every house I buy.
If you are wholesaling properties, you need to know the ARV as well. Wholesalers typically buy or get a house under contract that they will sell to another investor without making any repairs. To know how much another investor will pay for the property, you need to know the ARV. The ARV is one of the most important parts when wholesaling houses.
What are the first things to do when learning how to determine the ARV?
The best way to learn values is to immerse yourself in the market. There are many things you can do to begin your education:
- Decide on a specific market you want to learn. If you try to learn the entire city of Atlanta, it will take you years, and by the time you figure it out, the market will have changed. Focus on smaller areas.
- Look at Zillow, Redfin, Realtor.com, and the MLS for houses for sale in the area. Look at houses that need work and houses that have been repaired. You need to know what things are selling for in every condition.
- You need to start to view properties in person. You cannot sit at home and figure out values. You need a great real estate agent who will help you view houses. They only get paid when they sell a house. Be honest with them, and tell them your plan. It does not hurt to buy them lunch or do something else to make them feel appreciated.
- You need to look at the sold properties as well. Houses that are for sale can give you an idea of values, but they could also be overpriced and never sell as well. An agent can help you find sold comparable properties, and Zillow will list them as well.
- Eventually, you will begin to get an idea of what houses will sell for and what the ARVs are in certain areas.
Figuring out market values takes time; this will not happen overnight. You can start learning what values are right now, and it may be the most important thing you do as an investor.
My book: How to Buy a House: What Everyone Should Know Before They Buy or Sell a Home goes over almost everything else you will need to know about the buying and selling process.
What are more advanced things you can do to determine the ARV on houses?
You can get an idea of what houses will sell for, but you need to be an expert if you want to be the best real estate investor you can be. I am a real estate agent, which helps me a lot. I can pull up all comps from public records and all MLS information very easily. I also can view any house I want, whenever I want (pending the seller allowing showings) without having to bug my agent. Another thing I have done that helps me value houses is complete BPOs. BPOs are broker price opinions that are usually completed for banks to value properties. They are very similar to appraisals but not as detailed.
Not everyone is a real estate agent or wants to be an agent. You can still figure out ways to come up with accurate ARVs without being an agent. If you can get access to the MLS, it will be extremely helpful. In some areas, you can be an unlicensed assistant with access to the MLS for other agents. You can also have an agent help you pull comps, or you can use Zillow. However, Zillow does not provide nearly as much information as the MLS.
Once you have the comps, you need to know how to compare sold properties to the property you are trying to value. Every property is different, which makes valuing them hard. This is one reason why you can get a great deal on houses. I will not go over how to make adjustments in this article, but I do go over making adjustments in another one.
Determining the ARV is extremely important for any real estate investor. You have to remember that every house is different, every area is different, and every house is in a different condition. I can’t tell you how many times people on YouTube or Facebook tell me my houses are overpriced. They live in a different state and assume housing prices are the same everywhere! If you are only relying on others to give you values, you could be making a huge mistake! A 10% difference in values could mean the difference between making and losing money.