After Repair Value is a calculation performed by real estate investors and residential hard money lenders when evaluating a rehab project or potential flip. Flipping homes frequently requires repairs in order to make the home more appealing to your buyer or tenant. The ARV (After Repair Value) is simply what the house would sell for if it were already repaired and in average condition for the area.
It is important that investors do not miscalculate ARV, because it determines whether or not a rehab project is going to be a winner or loser. One should consider being very conservative on this value to insure your profit margins are real, and leave you room for a margin of error.
You can calculate ARV yourself if you know your market, and have access to local public records. You need an adequate amount of comparable sales that are recent for that particular location. A good rule of thumb (if the property is not rural) is to find 4-6 comparable homes that sold in the past 6 months, and within a mile. The closer a home is to your subject property, the more value you should give it. Also the more recent a comparable sale is the better.
If you are not familiar with the location of your subject property, it would be best to ask an appraiser or real estate broker for a "pencil lookup". If they balk at the potential of them working for free you can decide to pay a nominal fee for this, or move to the next appraiser or broker (promise them a referral or your future business if you decide to flip that house) until you find someone helpful. If you have a real estate broker in mind, and you plan to list the subject property with them anyway, you can ask them to work up a CMA (Comparative Market Analysis) and use this to obtain your ARV.
Once you know your ARV you can work towards seeing if your deal is profitable or if you would qualify for a Residential Hard Money Loan. Residential Hard Money Lenders lend up to 70% of the ARV, and typically allow you to roll in closing costs, rehab costs, and even payments in some cases. This does not happen in a conventional mortgage where they base your value on the purchase price, no matter how low you are getting in.
