Investment Concepts
What Is After Repair Value (ARV) in Real Estate?
After Repair Value (ARV) is the estimated market value of a property after all planned renovations are completed. ARV is the foundation of fix-and-flip investing, the BRRRR strategy, and any acquisition involving a distressed or below-market property that will be improved.
How ARV Is Calculated
ARV is determined by running comps on properties that are already in the renovated condition your subject property will be in after repairs. If you're buying a distressed home to renovate and sell, your ARV comps should be fully updated homes in the same neighborhood — not distressed homes.
ARV ≠ Current Value + Renovation Cost. That's the naive calculation. The market may not give you dollar-for-dollar value for renovations. ARV is what the market will actually pay for the finished product, determined by what comparable renovated homes have sold for. If renovated comps in the area are selling at $350/sqft, and your renovated home will be 1,400 sqft, ARV = $490,000 — regardless of what you spent on renovations.
The 70% Rule for Fix-and-Flip
The Formula
Maximum Offer Price = (ARV × 70%) − Estimated Repair Costs. The 70% threshold accounts for purchase costs, holding costs, selling costs (commissions, closing), and profit margin.
Example
ARV = $300,000. Estimated repairs = $40,000. Max offer = ($300,000 × 70%) − $40,000 = $210,000 − $40,000 = $170,000. If you pay more than $170,000 on this deal, your profit margin is compressed or eliminated.
ARV FAQ
Is ARV the same as appraisal value?
Not exactly. An appraiser can produce a 'subject to' appraisal — value 'subject to' proposed renovations — which is essentially an ARV appraisal. This is commonly used by lenders on hard money and renovation loans. Informally, investors calculate their own ARV using comps; lenders require a formal subject-to appraisal.
What comps should I use to determine ARV?
Use recently sold (within 90 days), fully renovated comparable homes in the same neighborhood, similar size (within 15%), same property type. If you're renovating to a certain level (granite counters, updated baths, new HVAC), your comps should reflect that same level of finish — not entry-level updates or luxury finishes beyond your scope.
How does ARV affect renovation loan underwriting?
Renovation loans (FHA 203k, Fannie Mae HomeStyle, hard money bridge loans) are typically underwritten on ARV rather than current value. The lender may lend up to 70–90% of ARV, giving borrowers access to funds based on the future value of the property rather than its distressed current condition.
Why is accurate ARV critical for investors?
ARV error is the most common cause of failed fix-and-flip projects. Overestimate ARV by $20,000 and you've eliminated your profit on a $100,000 renovation budget project. Conservative ARV estimates with a margin of error buffer (5–10%) protect investors from market shifts during the renovation period.
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