What is ARV in Real Estate?
What Does ARV Mean and How is it Used?
In real estate, ARV stands for "After Repair Value." This term refers to the estimated value of a property after it has undergone necessary repairs and renovations. ARV helps real estate investors calculate the potential profit margin by estimating the property's market value post-rehabilitation. This calculation helps determine the feasibility and budgeting of a renovation project to ensure that the investment will yield a favorable return.
Investors use ARV to calculate the maximum allowable offer (MAO) for a property by considering repair costs, holding costs, and their desired profit margin.
The formula to estimate ARV is:
ARV = Purchase Price + Value of Renovations/Repairs
Example:
- Purchase price: $150,000
- Renovation cost: $40,000
- Comps suggest the home would sell for $250,000 after upgrades.
In this case, ARV = $250,000
Common Uses of ARV
- Determine offer price: Investors often use formulas like the 70% rule (ARV × 0.70 − repair costs) to back into a max offer.
- Loan calculations: Many lenders offer 65–75% of ARV as a loan.
- Project profitability: ARV helps estimate return on investment (ROI) once all costs are factored in.
Investors often compare ARV to similar properties (comparables) that have recently sold in the same area to ensure their estimate is accurate.
