The Complete Guide to Calculating ARV for Real Estate Investments
The After Repair Value is the single most important number in any real estate investment. Get it right, and you profit. Get it wrong, and you lose thousands.
In real estate investing, ARV stands for After Repair Value. It is the estimated market value of a property after all planned renovations and repairs have been completed.
Everything hinges on the ARV. Hard money lenders base their loan amounts on it. Your Maximum Allowable Offer (MAO) is derived from it. If your ARV is wildly inaccurate, your flip is doomed before you even swing a hammer.
What is a "Comp"?
A comparable sale—or "comp"—is a property similar to your subject property that has recently sold in the same immediate area. Appraisers and investors use comps to establish a baseline value.
The Golden Rules of Pulling Comps
To calculate ARV accurately, you must find 3 to 5 highly comparable properties. When selecting comps, strict rules apply:
1. Distance Limits
- Urban Areas: Stay within a 0.25 to 0.5-mile radius. Crossing a major highway or railroad track can completely change the property's value.
- Suburban Areas: A 0.5 to 1-mile radius is generally acceptable. Ensure they are in the same subdivision if possible.
- Rural Areas: You may have to expand out 2 to 5 miles, but stay within the same school district.
2. Timeframe
Only use properties that have SOLD within the last 90 to 180 days. In a rapidly changing market (like 2021-2022), anything older than 90 days is obsolete data. Never use active listings as your primary comps—they only show what someone hopes to get, not what the market will actually pay.
3. Similarity Parameters (Apples to Apples)
- Square Footage: Stay within +/- 15% to 20% of your subject property's Gross Living Area (GLA).
- Bedrooms & Bathrooms: A 3/2 should be compared to a 3/2. Avoid comparing a 4-bedroom house to a 2-bedroom house.
- Age: Try to stay within a 10-15 year build date range. A house built in 1940 appraises differently than a new build from 2020.
- Property Type: Only compare single-family to single-family, and townhomes to townhomes.
Adjusting Comps for Condition
This is where the art of calculating ARV comes into play. You have found 3 solid comps. Now you must look at the photos of the interiors of those sold homes.
If the house that sold for $400,000 had brand new custom shaker cabinets, a waterfall quartz island, and high-end LVP flooring, your flip must feature similar or better finishes to command that $400,000 price tag. If you use cheap laminate counters and keep the old 1980s tile, your house is not worth the same as that comp.
The Calculation (Price Per Square Foot method)
Once you have your 3 perfect comps that match your planned finish level, calculate the Price Per Square Foot (PPSQFT) for each.
- Comp 1: $300,000 / 1,500 sqft = $200/sqft
- Comp 2: $310,000 / 1,550 sqft = $200/sqft
- Comp 3: $290,000 / 1,400 sqft = $207/sqft
The average PPSQFT of the comps is roughly $202/sqft.
If your subject property is 1,500 sqft: (1,500 × $202) = $303,000 ARV.
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Pulling comps manually across multiple sites and building spreadsheets takes hours and opens you up to mathematical errors.
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