What is ARV?
Looking to start flipping houses but you’re not sure what to look for in a property? There are several different factors to consider when looking at a property to flip. How much rehab will the home need? Is it in a nice neighborhood located near great schools? What will the home be worth once the rehab is finished? These are all questions that have to be considered and answered when looking at different properties to flip.
One of the key metrics to determine the value of a fix-and-flip property is the ARV, or After Repair Value. The ARV is an estimate of what the home will be worth once all of the rehab has been completed on the property. The ARV also gives the real estate investor a good idea of what they’ll be able to resell the home for once it is ready to go on the market. ARV is determined by estimating the amount of rehab that will be put into the property and by completing sales comparisons for other similar properties in the same neighborhood once the appraisal of the property has been completed.
When a real estate investor applies for a hard money loan most lenders will lend up to a certain percentage of the ARV. 70% is the standard maximum percentage of the ARV with anything above 70% considered to be too risky for the lender to lend on. To calculate what percentage the loan to ARV will fall under simply divide the loan amount by the ARV. For example if you have a loan amount of $175,000 and an estimated ARV of $250,000 your loan to ARV will be exactly 70%.
Flipping houses is a very exciting and rewarding way to grow your personal income. Having a good understanding of how the numbers such as the ARV work will go a long way in helping to find properties that will give a new real estate investor a better chance at making higher profits and a higher return on investment.
Lima One Capital is the premier lender for real estate investors. We make it easy it finance all of your fix-and-flip, rental property, and multifamily investments. We are a national hard money lender lending in 42 states as well as Washington, D.C. We have a passion for real estate and helping real estate investors become successful in their pursuit of their entrepreneurial goals. If you would like to learn more about Lima One Capital and our hard money programs, feel free to contact us at 1-800-390-4212 or send us an email at [email protected].