Today, I want to talk about something that comes up a lot with investors and borrowers: ARVs — After Repair Values.
The Old Way vs. The New Reality
There was a time when we’d let borrowers have a little “executive privilege” on their ARVs — meaning they could bump up their projected resale values a bit based on comps they liked. But that time is over.
With the current market conditions, we are strongly advising everyone to be conservative when estimating ARVs. Why?
What’s Happening in the Market?
It’s kind of a mixed bag right now:
- In some neighborhoods, houses are sitting on the market longer, with prices dropping.
- In other places, especially those with high-quality renovations, good bones, and great locations, homes are still attracting multiple offers and even selling over the asking price.
But houses with poor renovations or in less desirable areas? They’re sitting. Even if the renovations look nice, if the neighborhood or the fundamentals aren’t solid, buyers just aren’t biting.
How to Approach ARVs and Renovation Budgets
Here’s my advice that’s worked for me and the investors we work with:
- Be conservative on your ARV. Use comps that are slightly above your estimated ARV, so you’re not overestimating what you can sell the house for.
- On the flip side, be generous on your renovation budget — overestimate rather than underestimate what it will cost to fix the property up.
By underestimating your ARV and overestimating your renovation costs, you build a cushion into your deal and protect yourself from losses.
What Do You Need to Analyze a Deal?
When I analyze a deal, I focus on three key numbers:
- Purchase Price
- Rental Amount
- ARV supported by solid sold comps
Make sure your ARV is backed by actual comps in the market, ideally some that are even higher than your estimate. This way, you avoid surprises and make smarter investment decisions.
Final Thoughts
Being conservative doesn’t mean you miss out on opportunities — it means you protect your money and position yourself to succeed in any market.