Understanding ARV Percentages

Understanding ARV Percentages

When we talk about 70-80% of the After Repair Value (ARV), we're essentially discussing the profit margin an investor aims for. This percentage serves as a guide, not a rigid law, and individual investors may adopt strategies that seek more or less aggressive margins based on their risk tolerance and business models.

Here's the high-level explanation: 

If an investor says they're looking at 70-80% of the ARV, they mean they're seeking to acquire the property at a price point where, after repairs and renovations, the resale value would net them a profit within that range.

It's important to note that this percentage generally takes into account an investor's potential expenses such as closing costs, holding costs, commissions, and other associated expenses. Also, remember that the repair and renovation budget is separate from this percentage.

However, it is crucial to remember that the estimation of ARV is subjective. It's based on an analysis of the local market, comparable properties, and the state of the property in question, but the investor might not always agree with an agent's opinion of ARV. 

Now, let's illustrate this concept with a simple example:

Say there's a property with an ARV of $415,000, and the investor is looking to purchase at 70% of ARV. This would equate to a potential value of around $290,000. However, this doesn't yet take into account the repair and renovation budget. If the property needs $20,000 in renovations, that would be deducted from the offer, potentially bringing the offer to $270,000.

Remember, this is a general illustration. Each property, investor, and situation will have its own unique considerations.

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