What Is ARV in Real Estate? How to Calculate After Repair Value
ARV is the single most important number in fix and flip investing. Here is how to calculate it accurately and avoid costly mistakes.
Re:InvestorHub Team · · Deal Analysis
If you are buying properties to fix and flip, ARV is the number everything else depends on. Get it right and your deal pencils. Get it wrong and you can lose tens of thousands of dollars even on a "successful" flip.
What Does ARV Mean?
ARV stands for After Repair Value. It is the estimated market value of a property after all planned renovations are complete. This is not what the property is worth today in its current condition; it is what a buyer would pay for the finished, renovated version.
Why ARV Matters So Much
Every major financial decision in a fix and flip depends on ARV. Your maximum purchase price, your rehab budget, your expected profit, and your hard money loan amount are all calculated as percentages of ARV.
The most common formula used by fix and flip investors is the 70 percent rule: do not pay more than 70 percent of ARV minus repair costs for any property.
Example: If the ARV is $250,000 and repairs are $40,000, your maximum offer is (0.70 x $250,000) - $40,000 = $135,000. Paying more compresses your margin and leaves you vulnerable to cost overruns or a soft market.
How to Calculate ARV
ARV is calculated using comparable sales, known as comps. The process mirrors what an appraiser or real estate agent does when pricing a home.
- Find 3 to 5 recently sold properties (ideally within 90 days)
- Properties should be within 0.5 to 1 mile of your subject property
- Match on size (within 10 to 15 percent of square footage), bed/bath count, and condition
- The comps should represent the condition your property will be in after renovation, not its current state
- Average the price per square foot of your comps, then multiply by your property's square footage
The Most Common ARV Mistakes
Using comps that are too far away is the most common error. A house two miles away in a different school district or neighborhood can have a substantially different value, even if it looks similar on paper.
Using outdated comps is another trap. A comp from 12 months ago may not reflect the current market. In a declining market, older comps will inflate your ARV. In a rising market, they will understate it.
Confusing the current as-is value with ARV is costly. If you pull comps of properties in similar current condition rather than similar finished condition, you will underestimate what the renovated property is worth.
Getting a Second Opinion
Before making an offer on a significant flip, it is worth getting a local real estate agent or an experienced investor to review your ARV calculation. The cost of a second opinion is zero compared to what a wrong ARV can cost you on a deal.
Hard money lenders will also order their own appraisal before funding. If your ARV is significantly off from theirs, you will either need to make up the difference in cash or renegotiate the purchase price.
ARV in Buy-and-Hold Investing
ARV matters in rental investing too, particularly for the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat). After renovating and renting a property, you refinance based on the new appraised value to pull out your capital for the next deal. Knowing your ARV upfront tells you how much equity you will be able to recycle.