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4 Insider Secrets for Calculating ARV

Batch Service
Written by Batch Service 
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Robert Kiyosaki said it best in Rich Dad, Poor Dad: you make your money on real estate when you buy, not when you sell. And whether you’re a wholesaler flipping contracts or a long-term real estate investor buying and selling, Kiyosaki is still right on this one.

If you’re calculating your After Repair Value (ARV) incorrectly, you’re leaving money on the table at best. You’re losing tens of thousands of dollars at worst, and you may not realize it. But we’re not going to leave you high and dry because we’ve identified the four most common factors that investors forget to consider when calculating ARV. We’ve included some additional elements you can’t afford to ignore as a bonus.

So buckle up because we’re about to take your ARV calculations way past comps and the 70 Percent Rule and transform how you calculate the value of the properties forever.

Did You Forget Where You Are?

One of the worst mistakes you can make when calculating ARV is to forget the neighborhood you’re in. Even if you comp the property and the numbers look good, comps don’t always consider where a house is located. Sometimes, crossing over two or three streets drastically changes a neighborhood and the value of nearly identical properties. So, just because a comp analysis gives you numbers you like, cross-check them with what you know of the area.

Ask yourself these questions:

  • What is this neighborhood or street like compared to the ones my comparables are in?
  • Is this area growing, stagnating, or dying?
  • What are the houses surrounding my deal like?
  • How busy is the area or street around my deal?

If you don’t like the answers to these questions, that doesn’t mean you have a bad deal. However, suppose you find that the circumstances and location of your deal are very different from the comparable properties you’ve been looking at. In that case, you need to go beyond your comps, find an accurate value, and adjust your offer accordingly. Nothing will kill your profits like stubbornly moving forward with a number when all the signs are telling you it’s not accurate.

I Can Do It All By Myself

Most people don’t want to admit this, but we need help sometimes. Instead of accepting it, we barge ahead and get ourselves in trouble. Real estate is an area where you can’t afford to do that!

Real estate is made up of many different professions. It’s great to be an investor, wholesaler, or agent, but don’t forget that appraisers, plumbers, electricians, and many more home service professionals probably know more about the specifics of home repair than you do.

Suppose you don’t know everything about home repair (which you probably don’t), then the money you spend getting expert opinions will be pennies compared to the losses you’ll face by stubbornly trying to do everything yourself. If you don’t know the answer to something, get help.

Of course, your first resource should be a good comps tool that has MLS bought and sold listings. This will be your best friend in 90% of the houses you work with, but if you have questions about a property’s specific needs, you should reach out to someone you can trust. Plus, by forming relationships with home service professionals, you may find even more deals as the professionals recommend you to clients who aren’t interested in pricey repairs.

Context Matters

Let’s face it; we’re in a lucrative seller’s market right now. Even though prices are inflated, and interest rates are rising, homebuyers have turned into sharks in a feeding frenzy. They’re buying like crazy, and they’re not afraid to start bidding wars and make initial offers that are tens of thousands of dollars over the asking price. Even better for sellers, prices haven’t stopped climbing yet. It’s an excellent time to be a real estate investor.

Yes, though you should be careful. You would be mistaken to think the housing market will look like this forever. The market can change faster than you think, and the signs of change might not come until after you put ink on an expensive deal. Signing on a house that you know is ridiculously inflated because you’re sure it will be even more inflated in a few months could lead to severe losses.

This also applies to your comps. Just because comparable properties sold for a certain amount doesn’t always mean your deal will, especially if you plan to buy and hold. Remember what Kiyosaki says? You make money when you buy, not when you sell. At one point, the value of each of those comparables was lower than what you see in your report. That means they sold at an increase, potentially even a peak. That market peak might not be the state of the market right now, so you should be careful taking a comp valuation at face value.

The More The Merrier, Right?

Common knowledge says that the more rooms (especially bedrooms) a house has, the more it is worth. Unfortunately for many real estate investors who have confidently used this rule of thumb, more doesn’t always equal merrier.

Instead of using bedrooms or bathrooms as the determining factor in calculating value, look at the square footage. As some real estate experts advise, if two houses have similar square footage, but one has more bedrooms, the additional bedrooms came at the expense of something else in the home. Every room in the house is probably smaller, the house might be missing a functional room like a dedicated dining room, or it might have exchanged a master bedroom for the additional room.

While it’s true that a house with more bedrooms will appeal to a bigger family, it doesn’t always mean that the house is worth more. Never forget that most people buy homes on an emotional level. They see a room or feature they can’t live without, and they base their decision on it. Cash buyers know this, so keep that in mind when calculating your ARV, whether your wholesaler, a long-term investor or something in-between.

Despite These Warnings, You Can Maximize Your ROI

Calculating ARV correctly is one of the most important things you can do as a real estate investor. Calculate it too low, and you leave money on the table. Aim too high, and you’ll lose money on the flip or contract assignment. That’s why you have to be careful when you crunch numbers and make sure you aren’t missing anything important.

While we’ve warned against relying too much on comps, they’re still your first tool when you sit down to calculate how much a house is worth because they give you information to work with. So you need a reliable comp tool that pulls MLS bought and sold listings. Otherwise, no matter what trends and neighborhood characteristics you consider, you’ll still be shooting in the dark.

BatchLeads offers the industry’s most accurate and reliable comp tool, complete with home sales data, a value calculator, etc. We want to give you an exclusive chance to try it out and see how it changes how you calculate ARV. So we’re giving you a free 7-day trial + 5,000 complimentary property records so you can start comping today! All you have to do is click here to sign up and get started! When you combine the expert insights from this blog with the best comps in the industry, you will save significant time and effort on calculating ARV. So are you ready to optimize your business? Then get started today by clicking the link above!


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