Definition
After Repair Value (ARV) is the estimated market value of a property after planned repairs or renovations are completed. ARV is commonly used in fix-and-flip, BRRRR, and value-add strategies to determine a maximum purchase price, appropriate rehab scope, and exit pricing.
How ARV Is Estimated
ARV is typically supported by comparable sales (comps) of similar properties that are already renovated to a comparable finish level. The goal is to compare the subject property as it will be after repairs, not as it is today.
Common methods
- Renovated comps method: Select recently sold renovated comps and adjust for differences (size, beds/baths, lot, location, parking).
- Price per square foot (with caution): Use $/sf from renovated comps as a cross-check, not the sole driver.
- Appraiser support: In financed projects, lenders may require an appraisal “subject to completion.â€
Why It Matters
ARV anchors the entire “deal math†for rehab projects. If ARV is overstated, investors tend to overpay, overspend on rehab, or both—resulting in weak returns even if the project is executed well.
Investor Uses
- Setting an offer price: Work backward from ARV to a price that leaves room for rehab, holding costs, and profit.
- Right-sizing rehab: Avoid “over-improving†beyond neighborhood buyer/tenant expectations.
- Financing: Some lenders base loan sizing on ARV rather than current value.
- Exit planning: Stress test ARV assumptions if the market softens or DOM rises.
Common Deal Math (Rule-of-Thumb)
Many rehab investors use simplified heuristics as a first-pass filter. A common example:
- Maximum Purchase Price ≈ (ARV × Target Discount) − Rehab Costs − Holding/Transaction Costs
Note: the “target discount†varies by market liquidity, project risk, and desired margin. Treat rules-of-thumb as screening tools—not substitutes for full underwriting.
Example
An investor estimates ARV at $450,000 based on renovated comps. Rehab is projected at $70,000, and total holding/transaction costs are estimated at $30,000. If the investor requires a $60,000 profit buffer, the offer ceiling becomes:
- Max Price = 450,000 − 70,000 − 30,000 − 60,000 = $290,000
Common Pitfalls
- Using “as-is†comps: ARV must be based on renovated comps at a similar finish level.
- Ignoring micro-location: Same zip code is not the same market (busy roads, school zones, crime patterns).
- Over-improving: Spending for finishes buyers won’t pay for in that neighborhood compresses returns.
- Stale comps: In shifting markets, old sales can mislead—adjust for trend and current listings.
- Not stress-testing: Model downside ARV (e.g., -5% to -10%) and longer days-on-market.