Success in fix and flip investing is contingent on various factors. None more so than a razor-sharp understanding of After Repair Value (ARV) real estate.
ARV in real estate provides investors and lenders with critical measurements and insights to help determine the potential resale value of a property after renovations. For investors, these metrics estimate a fixer-upper’s ROI potential, profitability, and whether the property is worth the investment. At the same time, lenders use ARV values to determine financing approvals, options, and terms. ARV real estate is an investor approach to maximizing profit margins through skillful ARV comps and strategic renovations.
In this article, we’ll further explain ARV and how to research ARV comps. Then, we’ll discuss the key features that influence ARV real estate and which renovations to prioritize to skyrocket a property’s resale value.
What is ARV in Real Estate?
In real estate, ARV is the estimated market value of a fix and flip property after renovations are completed. When combined with other metrics, a home’s ARV is a critical estimate for analyzing a property’s ROI potential using larger real estate investing formulas. On its own, ARV can help give investors an idea of overall repair costs, risk, and profitability while helping to avoid overpaying for or underselling a property.
ARV Comps
When determining a fix and flip home’s potential, there aren’t any after repair value formulas or ARV real estate calculators. Instead, investors use secondary resources, like Comparative Market Analysis (CMA) and Sales Comparison Analysis (SCA), to estimate a home’s market value post renovations. CMAs and SCAs provide investors (and lenders) with ARV comps–or comparables–of similar properties that sold recently in the area.
To accurately determine ARV comps:
- Look for properties sold in the same area within the last 3-6 months.
- Compare properties with similar bedrooms and bathroom counts, square footage, and lot sizes.
- If there are differences (e.g., a comp has an additional bedroom or more square footage), adjust the ARV value accordingly based on market projections.
- Consider your market’s trends (i.e., local demand, seasonal fluctuations, job markets, and other economic conditions).
For example, if you’re looking to flip a ranch built in the 1980s with a backdoor pool, don’t compare real estate comps for two-story new builds without a pool!
ARV Real Estate Renovating: Key Features Influencing a Property’s ROI
Researching comps goes hand-in-hand with understanding the best features to look for and the best renovations to enhance your property’s resale value–as well as your overall profits.
Let’s look at 4 key features and strategic ARV real estate upgrades to consider to boost your property’s ROI:
Bedrooms & Bathrooms
Typically, homebuyers want a home with the size and accommodations to grow their family. That is why converting a two-bedroom home into a three-bedroom can increase overall appeal and ARV value by 15-20%. To qualify as a “bedroom” in the US, a room must include:
- Closet space
- Lighting
- Window(s)
- At least 70 square feet of floor space
Today’s homebuyers also prioritize functionality and practicality, which is why many investors opt to convert half baths into full bathrooms. The addition of a full bathroom to a property can further increase ARV by 10-20%.
Square Footage & Usable Space
According to data from the Federal Reserve Bank of St. Louis, the median price per square foot of a home in the US is around $233. In other words, square footage matters for resale value! Especially usable square footage. That is why many savvy investors focus on high-ROI renovations that boost a property’s usable square footage, including:
- Finished Basements: Basement renovations, with a finished bedroom and bathroom, can also increase a property’s ARV by 10-20%.
- Attics: Converting an attic into a livable space can significantly boost ARV real estate estimates, especially in areas where square footage and land are more costly.
- Garages: In today’s work-from-home-friendly world, renovations to enhance a garage’s uses (home gym, office, etc.) is becoming a popular and profitable venture for fix and flip investors.
In some states, accessory dwelling units (ADUs) have also become popular among investors and homebuyers. The ADU addition gives homeowners the option to take in family or rent out the unit while allowing investors to increase ARV by 25-35% in some areas.
Kitchen Upgrades
A home’s kitchen can dramatically affect buyer appeal and ARV real estate projections. While kitchen renovations can be expensive, with adequate financing and strategic planning, the juice is often worth the squeeze for investors.
The top ROI enhancing kitchen upgrades include:
- Quartz or granite countertops
- Stainless steel, Energy Star-rated appliances
- Refaced and repainted cabinets
Open-concept kitchens continue to draw consumers in from the market. The subtraction of walls, along with the addition of key upgrades, can enhance ARV and resale value drastically.
Curb Appeal
Even in real estate, first impressions matter. Simple upgrades to the exterior of your home can increase resale value between 5.5-12.7%.
Some of the top exterior ARV real estate renovation projects include:
- Landscape maintenance
- Planting mature trees
- Front walkway redesigns
- The addition of landscape lighting
- Building a firepit
A new front door and energy-efficient windows are two additional high-ROI renovation projects that can increase curb appeal and enhance resale values.
Finding ARV Real Estate Success
Understanding ARV and ARV real estate strategy is essential to maximizing profitability. With rigorous ARV comps and market research, strategic renovations, and the right ARV mortgage partner, fix and flip investors can enhance profitability and scale their business exponentially.
Finance of America Commercial (FACo) offers the most reliable, investor-friendly short-term loans on the market. With flexible terms, fast application processes, and ARV considerations, we make fix and flip financing accessible and simple for investors looking to capitalize in today’s markets.
Our Fix and Flip loans offer:
- 12-18 month fixed-rate terms
- Snap Draws DIY for faster, easier draw requests on-the-go
- Up to 100% of rehab budget financing
If you’re looking to implement a profitable ARV real estate fix and flip strategy but lack adequate funding, look no further than FACo. Our team of industry experts will get you the financing you need–at the terms you want–to enhance ARV and skyrocket your investment’s resale value.
If you’re ready to take your investment business to the next level, speak to a FACo team member today. CLICK HERE to schedule a FREE consultation.
