Reliable way of calculating ARV??

[James Gibbons]

Hi all. Some people seem to make the math pretty simple when calculating ARV to determine potential profit before purchasing a deal.

What are some reliable/consistent methods that have worked for you?

Thank you!

[Scott Cheek]

@James Gibbons you basically want to do what the appraiser is going to do when you go to sell or refinance. There are two most commonly used methods they will use; one for single family homes and one for multifamily investment properties.

For single family homes, they will use the sales comparison method. This is taking a list of comparable properties recently sold in the same neighborhood with similar characteristics and estimating a value based on that comparison. A lot of variables here. A residential realtor with knowledge of your market and access to MLS data is your best resource to help in determining an estimated ARV this way.

A second method is the income approach and is used most commonly in commercial real estate, but could also be applied to anything with more than one unit like a duplex. This values the property based on the income it produces. The value is determined by dividing the Net Operating Income (NOI) by the Capitalization Rate (cap rate) for your market. So for example, if you had a property that produced an annual NOI of $15,000 in a market with a 6% cap rate, the property would be valued at $250,000 (15,000/.06).

If you are BRRRR'ing a property and going to refinance, one thing I recommend regardless of property type, is to meet with the appraiser, discuss the improvements you've made and provide them with the comps and/or property analysis showing why the property is worth what you think it's worth. This will make it far more likely for the appraisal to go in your favor.