Determining the After Repair Value (ARV) of a property is one of the most important steps when buying a property to fix-and-flip or to utilize the BRRRR strategy. BRRRR stands for Buy, Rehab, Rent, Refi and Repeat.
Unlike evaluating a property in its current condition, the ARV reflects what the property will be worth after repairs and upgrades have been made.
This is the number you’ll use to calculate your potential profit and assess the financial viability of the project.
To estimate ARV, you’ll need to look at properties that are similar to what your property will be like after you make any repairs, upgrades, and improvements… and in top condition.
Here’s how to do that.
Why Use Comparable Sales to Determine ARV
When you’re planning to flip a property or utilize the BRRRR strategy, understanding its ARV is essential before making an offer.
One of the best ways to estimate the ARV is by reviewing comparable sales, or “comps,” of similar properties that are also in top condition. Or, make adjustments for condition if you can’t find enough comparable sales.
Comps ideally show you what similar, fully renovated properties in the area have recently sold for, giving you a sense of what your property could sell for after repairs, upgrades and improvements you’ve made.
- What Will the Property Be Worth After Repairs? – You need to know if your investment will be profitable. Estimating the ARV helps you determine potential profit margins and whether the deal makes financial sense.
- How Do You Know? – Look at recent sales of similar properties to what your property will be like after you improve it and its in top condition to see what similar, fully renovated homes are selling for.
- Compare Apples to Apples – Don’t compare your future renovated property to homes that are not similar or not in the same condition. For an accurate ARV, the properties need to be similar in size, condition (after repairs), and location.
- Identical Properties Should Sell for Similar Prices – If two properties are the same in every way, you’d expect them to sell for about the same price. By matching the features and quality of comparable renovated homes, you can better estimate your property’s ARV.
- What Makes Properties Comparable? – To determine if a property is comparable, look at things like the number of bedrooms and bathrooms, square footage, year built, location, and the level of finishes and upgrades.
Key Factors for ARV Comparable Sales Data
Not all properties are the same, so it’s crucial to focus on specific factors that will help you find the right comps for estimating your property’s ARV. By looking at data from properties that are similar in key areas and have been recently renovated or are in top condition, you can get a clearer picture of what your property could sell for after repairs.
Here are the factors to consider when comparing properties for ARV:
- Same or Very Similar Area or Location – The closer the properties are in location, the more relevant the comparison will be.
- Same or Very Similar Beds/Baths – The number of bedrooms and bathrooms should be consistent across the properties you compare. If you’re adding a bedroom or bathroom during renovations, include comps that reflect these changes.
- Similar Year Built and Effective Age – Homes built in the same era tend to have similar construction materials and styles. However, if you’re updating the property extensively, consider its “effective age” after renovations.
- Similar Square Footage – Compare properties with similar square footage to what your property will be after any additions or expansions.
- Adjust for Finished Basements or Additions – If you’re finishing a basement or adding space, factor this into your comparisons. Look for comps with similar features.
- Use Price per Square Foot for Minor Differences – Use price per square foot to account for small differences in size, but adjust separately for significant changes.
- Similar Lot Size and Zoning – Ensure the lot size and zoning regulations match, as these influence the property’s potential use and value after improvements.
- Similar Property Style and Quality of Finishes – Compare your property to others with similar architectural styles and levels of finish. If you’re upgrading to high-end finishes, look for comps that have done the same.
- Similar Condition After Repairs – Focus on properties that are in the condition your property will be after renovations. Avoid comparing to outdated or fixer-upper homes.
- Similar Extras and Amenities – Features like garages, pools, updated kitchens, or smart home technologies can add value. Make sure your comps include similar amenities if you’re adding them.
Most Important Factors for ARV Comps
When estimating the After Repair Value of a property you’re planning to flip or apply the BRRRR strategy to, certain factors carry more weight than others. Focusing on these key elements ensures that the comps you select provide an accurate reflection of what your renovated property could sell for or appraise at after repairs.
The four most important factors are location, date of sale, size, and condition after repairs.
- Location of Property – Location is one of the biggest influences on property value. Even within the same city, values can differ significantly based on the neighborhood, school district, or proximity to amenities like parks and shopping. Comparing properties in the same or very similar locations is essential for an accurate ARV estimate.
- Date of Sale – The real estate market can shift quickly, so it’s important to look at sales that are as recent as possible. A property sold six months ago may not reflect current market conditions, especially if the market is changing rapidly.
- Size of Property – Size, including square footage, directly impacts value. Larger homes generally sell for more, but only if you’re comparing properties that are otherwise similar. You should compare homes within a 10-20% size range of what your property will be after any additions or expansions.
- Condition After Repairs – Since you’re estimating the value after renovations, it’s crucial to compare your property to others that are in similar, fully updated condition. Look for comps that have been recently renovated or are in top condition to match the level of improvements you plan to make. Matching the quality of finishes, appliances, and amenities helps you more accurately predict the ARV.
Finding Comparable Sales for ARV
Finding the right comparable sales (comps) is essential when estimating the After Repair Value of a property you’re planning to flip or BRRRR.
Comps are recent sales of similar properties in top condition, and they give you a baseline for what your renovated property could sell for.
You’ll need to balance between sold properties and those that are currently active on the market, but sold comps are generally more reliable for pricing your after-repair expectations.
Here are some things to keep in mind when finding comps for ARV:
- Sold Comps Versus Active Comps – Sold comps provide a clearer picture of what fully renovated properties are actually worth, as they represent real transactions. Active listings show asking prices, but these may not reflect the actual sale prices you’ll achieve after repairs.
- Sold as Close to Current Date as Possible – Look for comps that have sold recently to capture current market conditions. Sales from six months ago may not be relevant if the market has shifted, which affects your ARV.
- Want to Look at Both – It’s helpful to see active comps too, as these show your current competition and what buyers are seeing. However, sold comps should carry more weight in your analysis.
- Aim for About Half a Dozen Comps – Ideally, find at least five or six solid comps to give you a range of what your property might sell for after renovations. This helps smooth out any anomalies.
- Same Number of Beds and Baths (Ideally) – Try to find comps with the same number of bedrooms and bathrooms as what your property will have after renovations. If you’re adding a bedroom or bathroom, make sure your comps reflect these changes to accurately estimate your ARV.
Square Footage and Estimating ARV
When estimating the After Repair Value (ARV) for a property you’re planning to flip or BRRRR, square footage is a critical factor. The size of the home significantly impacts its value after renovations, so it’s important to ensure that the properties you compare are similar in size to what your property will be after any additions or expansions.
Here are some key things to keep in mind when comparing square footage for ARV:
- Square Footage +/- 10% to 20% – Ideally, the comparable properties should be within 10% to 20% of the square footage of your property after repairs. This helps you compare homes that offer a similar living experience and ensures your ARV estimate is accurate.
- Or, Determine a Dollar per Square Foot from Your Best Comparable Sold Properties – Another approach is to calculate the price per square foot of comparable properties that have recently sold in top condition.
- Remove High and Low Values, Especially Outliers – Exclude any extreme values that don’t reflect the general market trends, as these can skew your calculations.
- Use the Average to Estimate Your Property’s ARV – After removing outliers, calculate the average price per square foot. Multiply this average by your property’s projected square footage after repairs to estimate the ARV.
- Use Online Tools for Quick Estimates but Verify Manually – Some websites provide average price per square foot data, which can be useful for quick estimates. However, always double-check with your own analysis of comparable sales to ensure accuracy.
Proximity in ARV Estimation
When estimating the After Repair Value (ARV) for a property you’re planning to flip or BRRRR, proximity is another crucial factor in finding accurate comparable sales. The closer the comparable properties are to the one you’re considering, the better your ARV estimate will be.
However, sometimes you’ll need to expand your search if there aren’t enough similar renovated properties nearby.
Here’s how you should approach proximity when looking for ARV comps:
- Start Close to the Subject Property – Begin by looking for comps as close as possible to your property. Properties in the immediate vicinity are more likely to share similar market conditions and neighborhood characteristics.
- Same Neighborhood or Subdivision – Ideally, find comps within the same neighborhood or subdivision. Homes in the same development often have similar styles, lot sizes, and amenities, making them excellent comparisons for ARV.
- Include Nearby Neighborhoods or Subdivisions if Similar – If you can’t find enough comps in the same area, look at nearby neighborhoods with similar characteristics. Ensure these areas have comparable property values and buyer demand.
- Expand the Radius Gradually – If necessary, widen your search radius incrementally. Start with a quarter-mile radius and increase it until you find enough comparable renovated properties. Try to stay as close as possible to maintain accuracy in your ARV estimate.
- Consider Properties in the Same Zip Code – If expanding the radius doesn’t yield sufficient comps, include properties within the same zip code. Be cautious, as zip codes can cover diverse areas with varying property values.
- Last Resort: Same City – As a final option, look at comps from the same city. Keep in mind that different neighborhoods within a city can have drastically different values. Use this approach only if you’re struggling to find adequate comps that meet your criteria. And, if you have to go this far out to find comps, you should have much lower confidence in the value.
Property Type or Style
The type or style of the property plays a big role in estimating its After Repair Value (ARV).
Different property types can have drastically different values, and comparing properties of the same style helps you get a more accurate ARV estimate.
You wouldn’t compare a single-family home to a commercial property, just like you—in an ideal world with ample comparable sales—wouldn’t compare a ranch-style home to a tri-level.
If you can’t find comparable sales of the same property type, you can utilize different styles, but your confidence in that ARV estimate should be lower.
Here’s what to keep in mind when looking at property type or style:
- Single Family Home Versus Commercial – A single-family home should only be compared to other residential properties, not commercial buildings. These markets operate differently and have unique valuation factors affecting ARV.
- Stick Built, Manufactured Home, Condo, Townhouse – Make sure you’re comparing similar construction types. A stick-built home, which is built on-site, will have a different ARV than a manufactured home. Similarly, condos and townhouses have their own market dynamics, which impact their ARV.
- Ranch, Bi-Level, or Tri-Level – Ranch homes are single-story, bi-level homes have two distinct levels, and tri-levels have three. Comparing these property types helps ensure you’re estimating an ARV based on properties with similar usable space and layout after repairs. Each style has unique characteristics that can affect value differently.
- Brick, Siding – The exterior material of the home can affect its ARV. If you’re upgrading the exterior, compare to properties with similar materials. Brick homes might have a higher ARV than homes with siding due to perceived quality and durability.
These are just a few examples of the different property types and styles you might encounter.
As a real estate investor planning to flip or BRRRR, your goal should be to find comparable properties that match as closely as possible to what your property will be after repairs.
The more similar your comps are to your renovated property, the more accurate your ARV estimation is likely to be.
Year Built and Effective Age of Property
When determining the ARV (After Repair Value) of a property you plan to flip or BRRRR, it’s important to understand the difference between the year built and the effective age. The year built tells you when the property was originally constructed, but the effective age reflects how new the property feels after renovations.
In most cases, the original year built isn’t as important once you’ve made significant upgrades. The effective age, which is based on the condition and quality of the renovations, is a better guide for estimating ARV. While the MLS will still show the original year built, you should be looking for properties that, after renovations, will feel just as new as yours will.
In an ideal situation, you’d compare your property to other older homes that have also been fully renovated. But that can be difficult, as finding those comps may be challenging. Instead, I recommend focusing on properties with similar effective ages, even if they were originally built in different years. A home built 50 years ago but fully modernized can be comparable to a home built 20 years ago if the level of updates makes them feel similar in terms of style, quality, and functionality.
When evaluating comps, look beyond the original construction date and focus on homes that have undergone similar levels of renovation. If your updates bring the property to a high standard, you should compare it to properties that feel modern and new, regardless of their original age. This is especially true for older homes where significant updates like new kitchens, bathrooms, and major systems (plumbing, electrical, etc.) can drastically reduce the effective age.
The goal is to find properties that will appeal to buyers in the same way your fully renovated property will. This means not getting stuck on matching the original year built but instead focusing on the finished product and how it will compete in the current market. Your comps should reflect that level of modernity, even if it means comparing a much older home to a relatively newer one because both now have a similar feel and function.
By focusing on effective age rather than just year built, you can more accurately estimate your property’s ARV and make better-informed decisions about your investment.
Select Your Best Comparables
When selecting the best comparable sales for estimating the After Repair Value (ARV) of your property you’re planning to flip or BRRRR, you’re aiming to get down to about half a dozen comps.
An appraiser typically uses three to five comparable sales in an official appraisal, and you’ll want to be just as selective. But how do you choose the best comps for your ARV analysis?
The key is to filter through several factors to ensure you’re comparing properties that are most similar to what your property will be after repairs.
Here are the main factors to help you filter and select the best comps, roughly in order of importance:
- Beds/Baths – Start by matching the number of bedrooms and bathrooms your property will have after renovations. These are essential features that directly impact the property’s ARV and its appeal to buyers.
- Garages – A garage can add significant value, so compare properties that have similar garage setups to what your property will have after repairs. Whether it’s a one-car, two-car, or no garage, aligning this feature is important for an accurate ARV estimate.
- Square Feet – Keep your comparables within 10-20% of your property’s projected square footage after any additions or expansions. This helps ensure you’re looking at homes with similar living space and layouts, which affects the ARV.
- Proximity – Ideally, the comps should be from the same neighborhood or subdivision. If you need to expand your search, look at nearby areas that are similar in characteristics to maintain accuracy in your ARV estimation.
- Age and Effective Age – Compare properties that will have a similar effective age after your renovations. Homes built in different decades but updated to similar standards can be comparable in terms of ARV.
- Type, Style, Amenities – Make sure you’re comparing properties with the same structure type, architectural style, and amenities that your property will have after repairs. For example, if you’re renovating a ranch-style home with high-end finishes, compare it to other renovated ranch-style homes with similar upgrades.
- Recency of Sales – Lastly, focus on sales that are as recent as possible. The market can change quickly, so comps that sold recently will provide a more accurate ARV estimation.
By applying these filters, you can confidently narrow down your list of comparable sales to the most relevant properties, giving you a strong foundation for estimating your property’s ARV.
Your Current Competition: Active Listings
When estimating the After Repair Value (ARV) for your flip or BRRRR property, it’s important to pay attention not only to sold comps but also to your current competition—the properties that are actively for sale in your area.
Understanding the current market offerings helps you assess how your renovated property will compete when you list it for sale or what might have sold by the time you refinance it.
Here are a few key things to consider when looking at your active competition:
- What’s for Sale Right Now? – Look at properties currently listed for sale that are similar to what your property will be after renovations. These are the homes your potential buyers will be comparing to yours, so it’s important to know how your property will fit into the current market landscape.
- Same or Very Similar Criteria as Sold Comps – When analyzing active listings, use the same criteria you would for sold comps. Focus on properties with similar beds, baths, square footage, condition, and level of finishes that your property will have after repairs. This ensures you’re comparing your future renovated property to its true competition.
- MLS is Probably Your Best Source – The Multiple Listing Service (MLS) provides detailed information on active listings, including price history, property features, and days on market. This data is invaluable for understanding your competition and refining your ARV estimate.
- Days On Market – Pay attention to how long comparable properties have been listed. Properties sitting on the market for a long time might indicate overpricing or low buyer demand. This information can help you set a realistic ARV, adjust your renovation plans and expectations if necessary.
- Absorption Rate – This measures how quickly homes are selling in your area. It’s calculated by dividing the number of homes sold in a given time period by the total number of available homes. For example, if 10 homes sold last month out of 100 available homes, the absorption rate is 10%. A higher absorption rate means homes are selling faster, which could support a higher ARV. A lower rate indicates a slower market, suggesting you might need to price more competitively or adjust your renovation budget.
By factoring active listings into your ARV estimation, you ensure your renovated property will stand out in the current market. This insight guides your decisions on renovation scope and pricing strategy, whether you’re flipping or refinancing a BRRRR property. Ultimately, it helps you align your investment with market demands and maximize your potential returns.
Asking Price Versus Sold Price in ARV Estimation
When estimating the After Repair Value (ARV) of a property you’re planning to flip or BRRRR, it’s essential to understand the difference between asking prices and sold prices.
Focusing on actual sale prices helps you make a more accurate ARV estimate and avoid overestimating what your renovated property might sell for.
Here are some things to keep in mind about asking price versus sold price in ARV estimation:
- Asking Price is Not Sold Price – Don’t assume that the asking prices of active listings reflect what properties will actually sell for. Sellers may list their properties at optimistic prices that don’t align with market realities.
- Properties May Sell Below Asking Price – Many properties accept offers significantly below their asking price. Relying on asking prices can lead to overestimating your ARV, which could affect your profitability.
- Fantasy Land (Asking Price) Versus Reality (Sold Price) – Until a property sells, the asking price is speculative. The sold price represents the actual market value that buyers are willing to pay. For accurate ARV estimation, focus on sold prices of comparable renovated properties.
- Market Trends Matter – Analyze trends between asking and sold prices in your target market. If properties are consistently selling below asking price, you might need to adjust your ARV expectations accordingly.
By concentrating on sold prices rather than asking prices, you can develop a more realistic ARV estimate for your flip or BRRRR property. This approach helps ensure your investment decisions are based on actual market data, reducing the risk of overestimating potential returns.
Why Get Access To MLS
Getting access to the MLS (Multiple Listing Service) can be incredibly valuable for real estate investors when determining the After Repair Value (ARV) of a property you’re planning to flip or BRRRR.
The MLS provides comprehensive data on both active and sold properties, which can help you make more informed decisions about your ARV estimations.
If you don’t have direct access, you’ll want to work closely with your real estate agent, who can provide this data as part of their service to you.
Here are some of what the MLS can provide to you as a real estate investor:
- Sold Data for Comps – MLS provides detailed information on sold properties, which is crucial for finding the best comparable sales to accurately estimate your property’s ARV after renovations.
- Active Data for Comps and Finding New Deals – You can also use the MLS to see active listings, giving you insight into your current competition and helping you adjust your renovation plans to match or exceed what’s currently on the market.
- Manually Entered Full Property Information – Unlike some other real estate platforms, MLS data is manually entered by agents and often more reliable. It includes specific details that may not be available in tax records including photos and information about some upgrades done.
- MLS History of Properties from Previous Sales and Listings – The MLS allows you to see a property’s full history, including when it was listed, withdrawn, or sold. You can track price changes over time, as well as the historical descriptions and comments made by agents in previous listings.
- Mailing Lists – MLS also provides access to property owner mailing lists, which can be useful for direct marketing if you’re seeking off-market properties to flip or add to your BRRRR portfolio.
By leveraging the MLS, you gain access to detailed and reliable data that can significantly improve the accuracy of your ARV estimation.
Warning: Lack of Comparable Sales
When you’re estimating the After Repair Value (ARV) of a property you’re planning to flip or BRRRR, and you’re struggling to find comparable sales, that’s a significant warning sign.
The lack of similar renovated properties that have recently sold can make it challenging to determine the true market value of your property after repairs.
Here are a few things to keep in mind if you can’t find enough comps:
- Not Finding Properties That Are Similar That Have Sold? – If there aren’t enough comparable sales of renovated properties similar to what your property will be after repairs, it means you’re missing the sold data needed to accurately estimate your ARV. This makes your estimate of value much less certain.
- Be Very Careful – In this scenario, proceed with caution. Without sufficient comps, you’re making more of a guess than an informed decision, which can lead to overestimating your ARV and potentially losing money on the deal.
- Consider Being More Conservative in Offers and Renovation Plans – When you don’t have enough data to support a high ARV, it’s wise to offer less for the property and be more cautious.
- Control Without Excessive Risk – If you’re unsure of the ARV due to a lack of comps, consider strategies that limit your exposure. For example, you might include contingencies in your purchase contract that allow you to renegotiate or exit the deal if the ARV isn’t supported by a professional appraisal after inspection.
By being cautious when comparable sales are lacking, you can protect yourself from potential losses and make more informed investment decisions. Always ensure that your ARV estimates are based on solid data to maximize the success of your flip or BRRRR project.
Value of Upgrades
When estimating the After Repair Value (ARV) of a property you’re planning to flip or BRRRR, it’s important to understand how your planned upgrades will impact the overall value. While you’re investing money into repairs and improvements, not all upgrades will increase the property’s ARV by the full cost of the investment.
Here are some key points to consider about the value of upgrades:
- Upgrades May Not Increase Value by Their Full Cost – Spending $10,000 on a new roof doesn’t necessarily increase the ARV by $10,000. Essential repairs bring the property up to market standards but often don’t add extra value beyond that.
- Buyers Expect Basic Features – Most buyers expect a home to have functional basics like a solid roof, working plumbing, and intact windows. These features are considered standard and are already factored into comparable sales. Buyers typically won’t pay a premium for them.
- Consider Return on Investment for Each Upgrade – Focus on improvements that add significant value and appeal to buyers, such as modern kitchens, updated bathrooms, or adding living space. These upgrades may contribute more to the ARV.
- Over-Improving Can Lead to Diminishing Returns – Investing in high-end finishes in a neighborhood of modest homes may not yield a higher ARV. Align your renovations with the expectations and standards of the area to maximize your return.
- Use Comparable Sales to Gauge Value Added by Upgrades – Look at comps to see how similar upgrades have impacted the sale prices of other properties. This helps you estimate how much value your planned improvements might add to the ARV.
When planning your renovations, consider how each upgrade will impact the ARV based on real market data. This approach helps you allocate your budget effectively and focus on improvements that offer the best return on investment for your flip or BRRRR project.
Market-Based Adjustments
When estimating the After Repair Value (ARV) of a property you’re planning to flip or BRRRR, it’s essential to make adjustments based on real market data, not assumptions.
As an investor, you need to ensure that any value adjustments for upgrades or features reflect what buyers are actually willing to pay in your specific market.
Here are key points to consider for market-based adjustments:
- Base Adjustments on Real Data – Look at comparable sales to see how certain features or upgrades have affected sale prices. This gives you concrete evidence of what buyers are willing to pay for specific improvements.
- Features May Not Add Expected Value – Just because you invest in an upgrade doesn’t mean it will proportionally increase the property’s ARV. For example, adding a swimming pool might not add significant value if buyers in your area aren’t willing to pay extra for it.
- Avoid General Rules of Thumb – Relying on nationwide averages or general estimates for how much value an upgrade adds can be misleading. Each market is different, and the impact of specific features varies by location.
- Analyze Local Buyer Preferences – Understand what features are in demand in your market. For instance, in some areas, a modern kitchen or energy-efficient upgrades may significantly boost the ARV, while in others, they might not.
- Adjust Renovation Plans Accordingly – Use your market analysis to focus on upgrades that provide the best return on investment. This ensures you’re investing in improvements that will actually increase your property’s ARV.
In real estate investing, assumptions can be expensive. Always base your adjustments on real, local market data to make informed decisions. By doing so, you’ll more accurately estimate your property’s ARV and maximize your potential profit in your flip or BRRRR project.
Stable versus Changing Markets
When estimating the After Repair Value (ARV) of a property you’re planning to flip or BRRRR, it’s important to know whether you’re in a stable or changing market.
This distinction impacts how you should use comparable sales and evaluate pricing trends for your renovated property.
- Stable Markets – In a stable market, prices stay relatively consistent, with no more than a 3% change in the last six months. Here, you can rely on comps that are up to six months old since price fluctuations are minimal. This stability allows for more predictable ARV estimates based on recent sales of similar renovated properties.
- Changing Markets – In contrast, a changing market experiences more than a 3% shift in prices over the same period. This could be due to economic factors, shifts in buyer demand, or changes in inventory levels. In this case, you need to use comps no more than three months old to reflect the current conditions accurately. Relying on older comps might lead to inaccurate ARV estimates, which can significantly affect your profit margins in a flip or BRRRR project.
By understanding whether you’re in a stable or changing market, you can adjust your ARV estimation strategies accordingly.
- In a rapidly appreciating market, you might project a higher ARV, but also consider the risk of market fluctuations during your renovation timeline.
- In a declining market, it’s wise to be more conservative with your ARV estimates to protect your investment.
Income Properties vs. Owner-Occupant Properties in ARV Estimation
When estimating the After Repair Value (ARV) of a property you’re planning to flip or BRRRR, it’s important to compare like with like.
The type of property—whether it’s a single-family home or a multi-unit investment property—will influence how you assess its ARV.
Here are key points to consider:
- Single-Family Homes, Condos, and Townhomes – For single-family homes, including condos and townhomes, you should compare them to other similar properties using the comparable sales approach we’ve been discussing.
- Duplexes, Triplexes, and Fourplexes – When dealing with duplexes, triplexes, and fourplexes, try to compare them to other 2-4 unit properties using the same comparable sales approach. Ideally, match the number of units as closely as possible to ensure a more accurate ARV estimation. Use the same criteria we’ve been discussing to find comparable sales.
- Multi-Unit Properties with More Than Four Units – For properties with more than four units, which are considered commercial properties, the valuation process differs. These properties are often valued based on their income potential rather than traditional comps. When estimating the ARV after renovations, consider how the improvements will impact the property’s income and overall value.
- Price Per Unit Approach – This method involves dividing the sales price of similar renovated properties by the number of units to get a price per unit figure. You can then compare this to other multi-unit properties to estimate your property’s ARV, even if the properties vary slightly in unit count. Ensure the properties are similar, recent, and close in proximity.
- Cap Rate (Income Approach) – This approach calculates the property’s value based on the income it will generate after renovations. Investors often prefer this method because it reflects the property’s ability to produce cash flow post-repairs. To use this, divide the projected Net Operating Income (NOI) after renovations by the capitalization rate (cap rate) for similar properties in your market.
Essential Tools for Finding ARV Comps
When estimating the After Repair Value (ARV) of a property you’re planning to flip or BRRRR, having access to reliable data is crucial.
Ideally, you’re able to access MLS data either directly or through your real estate agent.
However, if you don’t have access to the MLS, here’s a list of useful websites along with a brief description of what each offers for ARV estimation:
- Local County Website – Many local county websites provide public access to property records, including sales history and property tax assessments. This information can help you verify details about comparable properties and confirm sales prices for your ARV calculations.
- Zillow.com – Zillow offers a “Zestimate” feature that provides an automated valuation of properties based on recent sales and listing data. Be cautious, though, as Zestimates—and all other automated valuations—can sometimes be off by a significant margin. While not always accurate for ARV, Zillow can be a starting point for identifying potential comps.
- Redfin.com – Redfin provides detailed listing data, including recent sales, market trends, and price history. It’s a great resource for finding recently sold renovated properties that you can use as comps for your ARV estimation.
- Trulia.com – Now owned by Zillow, Trulia offers similar features, including property listings and sales history, with an emphasis on neighborhood information like crime rates, schools, and local amenities. This can help you understand the desirability of the area, which affects your ARV.
- Realtor.com – It’s a good source for finding both active listings and sales history. Realtor.com often has up-to-date information that can aid in finding comparable renovated properties for your ARV calculations.
By utilizing these resources, you can gather the necessary data to find appropriate comparable sales, helping you to accurately estimate the ARV of your property after repairs.
Remember, while online tools are helpful, they should complement, not replace, the detailed analysis and comps you obtain from the MLS or your real estate agent.
How Accurate Are Automated Valuations in ARV Estimation?
When estimating the After Repair Value (ARV) of a property you’re planning to flip or BRRRR, you might be tempted to use automated valuation models (AVMs) from websites like Zillow or Redfin.
While these tools can provide quick estimates, they are often inaccurate when it comes to ARV, especially for properties that will undergo significant renovations.
Here are some important points to consider about automated valuations for ARV estimation:
- Automated Valuations May Not Reflect Post-Renovation Value – AVMs use algorithms based on current property data and recent sales of similar properties. They typically don’t account for the future condition of a property after repairs and upgrades, making them unreliable for ARV estimates.
- Zillow’s Zestimate Limitations – Zillow’s Zestimate is a popular AVM, but even Zillow acknowledges that their estimates can be off by a significant margin. For properties that will be extensively renovated, the Zestimate doesn’t factor in the improvements you’re planning to make. Check out their webpage about the accuracy of their Zestimates for more information.
- Lack of Specific Data on Planned Upgrades – Automated valuations can’t know the specifics of your renovation plans, such as the quality of finishes, layout changes, or additions. These factors significantly impact the ARV but are not included in AVMs.
- Automated Valuations Are More Accurate in Homogeneous Markets – AVMs tend to be more accurate in areas where properties are very similar and there are many recent sales. If you’re investing in a diverse market or dealing with unique properties, automated valuations become less reliable.
- Rely on Manual Analysis for ARV – Given these limitations, it’s essential to perform your own analysis using comparable sales of renovated properties. This manual approach allows you to account for the specific upgrades and market conditions relevant to your flip or BRRRR project.
How to Get Help Estimating ARV with Comparable Sales
Now that you understand how to use comparable sales to estimate the ARV of your flip or BRRRR property, you have two options: do it yourself or pay for assistance.
- Real Estate Agent or Broker – Your agent or broker is an essential resource. They have access to the MLS, which includes detailed data on recent sales of properties similar to your renovated property. Agents are skilled at finding relevant comps that match the condition and upgrades you plan to make. You can request their opinion of value, ask for a Broker’s Price Opinion (BPO), or have them provide you with the comps for your own analysis.
- Appraisers – A licensed appraiser provides a professional, unbiased valuation based on the property’s projected condition after renovations. They factor in comps, planned upgrades, and unique features that affect ARV. Appraisers are especially useful if you’re refinancing as part of a BRRRR strategy, since lenders often require an appraisal to confirm the property’s value.
- MLS or Sales Data Providers – If you don’t have access to the MLS through an agent, you can pay for services that provide sales data on renovated properties. While these platforms may not offer the depth of MLS data, they can still provide valuable comps for your ARV analysis.
Using a combination of these resources will give you a well-rounded view of your property’s ARV, helping you make informed decisions for your flip or BRRRR project.
Buyer’s Eyes in ARV Estimation
Using “buyer’s eyes” is a valuable strategy when estimating the After Repair Value (ARV) of a property you’re planning to flip or BRRRR. This approach helps you understand how your renovated property will compare to others in the market from a buyer’s perspective.
Here’s how to apply the “buyer’s eyes” method for ARV estimation:
- Visit Comparable Properties – Once you’ve identified what your property could sell for after renovations, visit other properties currently for sale in that price range and condition. These should be homes that have been recently renovated or are in top condition similar to what your property will be after repairs.
- Compare Your Renovated Property to Others – Ask yourself, “If I had $X (the projected ARV), would I prefer my renovated property or this one?” This helps you gauge whether your planned renovations will make your property competitive in the market.
- If You Prefer Your Property – If you would choose your renovated property over the comparable one at the same price, it suggests that your ARV estimate is realistic or possibly even conservative.
- If You Prefer the Other Property – If the other property seems more appealing, it may indicate that your ARV estimate is too high or that you need to adjust your renovation plans to match the competition.
- Adjust Renovations and ARV Accordingly – Use this insight to refine your renovation plans or adjust your ARV estimate. You might decide to enhance certain features to make your property more competitive or reconsider the budget to ensure profitability.
By putting yourself in the buyer’s shoes, you gain a better understanding of how your property will perform in the market after repairs. This approach complements your analysis of comparable sales and helps ensure that your ARV estimation is grounded in market realities.
Whether you’re planning to sell the property after flipping or refinance it as part of a BRRRR strategy, the “buyer’s eyes” method provides valuable perspective on your property’s appeal and potential value in the eyes of prospective buyers or appraisers.