What is After Repair Rental Rate for Single-Family Rentals?

by Jeff Pepperney, Real Property Management

W hen investing in single-family rental properties, there are two key value numbers you need to know: the property’s current value, and its after repair value (ARV). When you buy and fix up a rental property, it makes sense that not only will the property’s value change, but also the rental rate. To ensure that you are maximizing your property’s potential, you want to set accurate rental rates based not only on your local mar- ket, but also on the property’s newly repaired condition. To do so, you first need to know your property’s after repair value (ARV). So what is after repair value (ARV)? In layman’s terms, ARV is the new potential sales price of your rental property as determined by the market. The term “repair” in this case does not only refer to actual repairs you’ve made to the property. It also includes improvements, such as new flooring, painting, remodeling bathrooms, and replacing counter- tops. Often, adding such improve- ments to an existing property will increase the property’s value, espe-

cially if the improvements you have made are popular or in demand. If you have made or are planning to make repairs and improvements to your rental house, you should complete a new competitive mar- ket analysis to determine what the after-repair value would be. Usually, this market analysis involves locating comparable properties (comps) in your area that are similar to your newly updated rental house. For the purposes of determining ARV, look for recently sold homes near your property that have been updated. With at least three of these comps, you now have a good starting point for your analysis. You can calculate the price per square foot for each one (actual sales price of the home divided by square footage) to get a better sense of how yours compares. Once you have these numbers in hand, calculating your ARV is straightforward. First, find the av - erage price per square foot of your three comparable properties. Then, multiply your average by the square footage of your rental property. The

resulting is the after-repair value. But you also need to determine what the after-repair rent rate is. Fortunately, the process is similar to determining property values. Using your ARV, you can use local com- parable rentals to help determine what your new rental rate should be after making repairs and improve- ments. Or, you could contact your nearest Real Property Management franchise office. We offer free rental market analyses and assist property owners in setting accurate rental rates for their rental homes. With everything else you need to do, why spend valuable time researching rental rates and the other daily as- pects of property management? We can help you free up your valuable time for the most productive tasks your investment business requires. •

*Real Property Management is not a financial advisor. This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.


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