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How to Calculate After Repair Value

Jerry Norton

Jan 5, 2024

after repair value

Whether you buy and hold rental properties, wholesale, or flip homes, a critical component of your business is after repair value. 

After repair value, or ARV, can you tell you an expected return on investment for a property you’re considering purchasing. 

In this article, we’ll break down:

  • The after repair value formula
  • The pros and cons of using ARV to determine an ROI
  • And much more

If you’re ready to learn how you can utilize ARV to make profitable investment decisions, let’s get started! 

What is After Repair Value (ARV)?

ARV refers to the estimated value of a property after it has undergone necessary repairs and renovations. It represents the potential worth of a house once it has been renovated to its best condition.

After all, when a property is in need of repairs and renovations, its value is significantly lower than its potential.

The ARV takes into account the value that the property could achieve after it has been fully restored. 

This is why, if you’re interested in purchasing distressed properties, fixing them, and selling them for a profit, ARV is a critical component of determining whether or not a given property will be profitable in the near future. 

How to Calculate After Repair Value 

Now that we understand the significance of ARV, let's break down how you can calculate it simply and accurately. 

The formula is:

Purchase Price + Value From Renovations = After Repair Value

Purchase Price

To calculate ARV real estate, you have to first estimate the current value of that property. 

How can you do so? Here are a few ways: 

  • A professional appraisal service can easily identify any problems that can depreciate the property value. 
  • Looking at the property on the MLS can help determine its current value. 
  • A comparable market analysis of properties similar in size and age can help. 

This current value will dictate the purchase price of the property. 

Value From Renovations 

After you estimate the property’s current value, the last step is to determine the value from renovations. 

To do this, estimate the repair cost on the property. 

While this is simple, it’s critical to profitability: to earn a profit on the property, the total repair cost must not be more than the value of renovations once complete. 

After you have both the purchase price and the value from renovations, you can determine the after repair value. 

Factors That Influence ARV

Several factors affect the ARV of a property, including:

The Local Real Estate Market

If the market is hot and properties are selling quickly at high prices, the ARV of a renovated property may be higher.

On the other hand, if the market is slow and properties are sitting on the market for a long time, the ARV may be lower.

Neighborhood Desirability 

Neighborhood desirability is another crucial factor when calculating ARV.

Properties in highly sought-after neighborhoods tend to have higher ARVs because buyers are willing to pay a premium for the location.

Factors such as proximity to schools, parks, shopping centers, and transportation options all contribute to the desirability of a neighborhood.

Real Estate Comps

Comparable properties, also known as comps, are properties that have similar characteristics to the subject property. 

As an investor, you can use comps to determine the ARV by looking at the sale prices of similar properties in the area. 

Present Condition of the House

The extent of repairs needed, the quality of materials used, and the level of craftsmanship — and their cost — all contribute to the final value of the property. 

A well-renovated house with high-quality finishes will likely have a higher ARV compared to a property with subpar repairs and cheap materials.

The Bottom Line: After Repair Value

ARV is critical in determining a given property’s profitability. 

Whether you are a new or seasoned investor, ensure that you use it before purchasing your next property to ensure that it will yield a profit for your real estate business.