Factors to Consider When Calculating ARV for a Fix and Flip

Factors to Consider When Calculating ARV for a Fix and Flip

Real estate investing is a common practice within Washington, DC, where an estimated 50,528 home sales occurred in 2015. One of the most common ways to invest in DC real estate is to purchase homes that are in need of rehabilitation. Whether it is through extensive repairs or a simple bathroom remodel or two, all investors know that they must calculate the anticipated After Repair Value (ARV) before they embark on a house flipping journey.

ARV refers to the value of the home after all of the repairs have been completed. This does not mean that completing a $100K renovation in a newly purchased home will automatically result in an additional $100K in equity. This is one of the reasons that real estate investors calculate the anticipated ARV before they purchase an investment property.

There are several factors to consider when calculating the anticipated ARV of a home.

1. The cost of the materials and your ability to receive them at a discount. The price of materials typically fluctuates with supply and demand. Before you embark on a flipping and selling journey, make sure that you can purchase the required renovation materials at a discounted price.

2. Understand the limitations and strengths of your contractors. Not only will your contractors need to complete the work within a certain budget, but they will also need to perform high quality work. Without the highest level of workmanship, it will be very difficult to sell your investment home at a profit.

3. Keep the anticipated buyer’s budget in mind throughout the process. The buyer’s budget is one of the largest contributing factors to the ARV. While you might think that your recently renovated home is worth a certain amount, the reality may be quite different. Your home is only worth as much as a buyer is willing to pay for it, which means that even after completing repairs, your home needs to be competitively priced for the local market.

The good news is that if you are detailed oriented, work with a trusted team of real estate professionals, and intimately understand the local market, you can successfully calculate the home’s ARV to maximize profits.

Where To Flip In The District

Washington, DC is home to numerous established neighborhoods, as well as up-and-coming hotspots. To date, the most popular investment areas include Dupont Circle, Adams Morgan, Logan Circle, Columbia Heights, Shaw, and Capitol Hill, with explosive growth pushing into areas such as Eckington, Bloomingdale, Petworth, and Ivy City. These neighborhoods offer investors an opportunity to purchase single-family row homes and convert them into two or three unit condominiums.

For example, throughout 2015 and 2016, investors could often purchase a row house that was in need of extensive renovations for around $500,000. The homes could then be converted into condos and sold for up to $850,000 per unit (or more, depending, of course, on location, quality of renovation, layout, amenities, and so forth). The moral of the story for D.C. is clear. By successfully calculating ARV, investors can make informed decisions regarding the purchase of properties in up-and-coming neighborhoods.