## ARV Calculator: What It Is and Why It’s Important

Can you guess the number that should constantly be running through an investor’s mind when doing a deal? If you guessed the after-repair-value, then you are correct! The after-repair-value—or ARV—is an important metric to understand as it represents what your total investment will be worth at the conclusion of your deal taking into account the cost of repairs and other investments. In this ARV Calculator post, we’ll go over the various calculations that go into determining an ARV, provide some example ARV calculators, and discuss why it’s  important to properly calculate and understand ARV.

### ARV Calculator

ARV is simultaneously simple and rather complex. Understanding the calculation is quite straightforward as it can be determined by an easy formula:

ARV = (Purchase Price of Property) + (Cost of Repairs)

Plugging in the price of the property, and the cost incurred in fixing the property up for sale will get you the ARV, simple as that! However, while the calculation may be straightforward, investors can sometimes run into trouble when trying to determine the correct values to plug in. You see, the difficulty of determining the ARV of a property prior to making the deal is that you often have to rely on estimates that might differ from the final value of a property. In other words, you may underestimate or overestimate the profit you will make on a deal if your original estimates differ from what the final values end up being.

### Estimating the Current Value of a Property

While you will of course pay a set amount for a property, properly understanding the property value is an important step in the fix-and-flip process. Determining a property’s value is a two-step process. The first step is to obtain an appraisal for your property. You should always have a professional appraiser determine the property value, and some investors even like to have multiple appraisers value a property in order to get the most accurate appraisal. Remember, you can always make an objection at your county’s appraisal district if you believe your property value to be different than your original appraised value.

The second step is to compare your property value to the values of other similar properties in the same area. For example, if you fix-and-flip a residential property in a suburban neighborhood, then you would likely compare the property values against properties with the same or similar house layouts within the same neighborhood or neighborhoods close by. A great way to see how your property value compares to others is to draw a comps report for your property (check out our comps blog post explaining how to do so).

Ultimately, the calculated ARV should be fairly similar to the values of these similar properties. If your ARV is significantly lower than these other properties, then this is a sign that you either made a mistake during some part of the calculation process, or that you have a poor investment. Unfortunately, you can not accurately compare property values until after repairs have been completed which is where many investors run into problems.

### Estimating Cost of Repairs

This calculation is often the most important part of determining ARV as this is where you’re going to establish the profitability of your investment. This value is going to vary significantly from property to property as some fix-and-flips require complete overhauls while others merely require a bit of touching up. Generally speaking, the greater the cost of repairs, the greater the ARV though the purchase price will likely be lower when more repairs are necessary.

There are numerous methods for calculating repair costs, but one the one we recommend is to create a “high and low list.” This involves speaking with contractors and taking a survey of materials prices before developing a list that specifies a price range for each aspect of the repair. You then total up the low costs and high costs, and average the two totals together to get your estimated cost of repairs.

For example, let’s say the lowest price for the flooring is \$1,800 from one retailer, and \$3,000 from another. We’ll also say that the price to touch up the windows varies from \$200 to \$550. If these were the only repairs required (which is not likely) you would add up the low costs to get \$2,000 and the high costs to get \$3,550, which would average out to \$2,775. Thus, \$2,775 would be your estimated cost of repairs for this particular fix-and-flip!

Finally, it’s important to remember that your estimated cost of repairs will almost certainly differ from your actual final cost. Prices fluctuate and your estimate is just that, an estimate. Your goal in estimating the cost of repairs should be to get as close to the actual cost as possible to ensure that you have an accurate ARV and know that you’re getting a profitable investment.

### The 70% Rule

There’s an old adage in real estate that you should never pay more than 70% of the ARV of a property minus the cost of repairs. For example, if you were interested in purchasing a property for a fix-and-flip with an ARV of \$200,000, and repairs were going to total \$35,000, then according to the 70% rule, you should pay no more than \$105,000 for the property upfront. In other words, we can write the 70% as:

Best Bid Price = (ARV x 0.7) – (Estimated Cost of Repairs)

The main reason that the 70% exists is to ensure that your ARV nets you at least some profit. Deals often do not end up working out the exact way that you calculated they would, and if you were to spend too much on the property upfront, you may end up with little to no profit in the end. If you were to underestimate the repair costs, or end up with a higher interest rate than you planned for, all your work might not pay off the way that you had hoped it would.

### ARV Calculator Resources

NewSilver’s ARV Calculator and REI Kit’s ARV Calculator both make calculating the ARV on a specific property a piece of cake! Simply input the address of the property that you’re interested in seeing the ARV of and these tools will use similar properties nearby to give you an estimation of your property’s ARV.

RealEstateInvesting.com’s 70% rule calculator works similarly to the previous calculators, but as you probably guessed this one uses the 70% to provide you with a recommended maximum offer price on a property. Simply enter the ARV (which you probably already calculated using one of the other resources provided), along with the estimated cost of renovating the property.

HomeAdvisor’s True Cost Guide allows you to estimate the cost of renovations on a particular deal. This is a great resource that allows you to input all types of repairs, such as remodeling a kitchen, fixing A/C or plumbing, and many others, and then provides an estimated price range for each renovation. You can even type in your zip code to get a more specific estimate of how much certain repairs cost in your particular area.

NewSilver’s ARV Calculation Guide is a more in-depth look at everything that goes into calculating ARV. We provide a simple overview in this blog post, but if you are interested in learning more or want specifics, then this guide makes for a great read.

### Summary

If you’re going to attempt a fix-and-flip deal or any other kind of investment, then chances are you’re going to be looking to earn a profit. Therefore, it’s important to understand the numbers that go into estimating a profit potential. That’s where ARV and ARV calculators come in. As always, good luck and happy (and profitable) investing!

Posted on Aug 17, 2021

#### Author: Alex Farris Soares

Alex is President of MyHouseDeals. Since 2006, he’s worked with real estate investors to bring them the marketing services and training they need to elevate their businesses and reach their goals. Alex is an avid customer advocate, enjoys affecting change in the REI and digital marketing industries, and promotes the values of entrepreneurship and innovation.