Using Comparable Sales to Determine ARV in Flipping and BRRRR

Bonus Module

Determining the After Repair Value (ARV) of a property is one of the most important steps when buying a property to fix-and-flip or to utilize the BRRRR strategy. BRRRR stands for Buy, Rehab, Rent, Refi and Repeat.

Unlike evaluating a property in its current condition, the ARV reflects what the property will be worth after repairs and upgrades have been made.

This is the number you’ll use to calculate your potential profit and assess the financial viability of the project.

To estimate ARV, you’ll need to look at properties that are similar to what your property will be like after you make any repairs, upgrades, and improvements… and in top condition.

Here's how to do that.

Table of Contents

Here’s what’s included below:

• Determining ARV when Flipping Properties

• Why Use Comparable Sales to Determine ARV

• Key Factors for ARV Comparable Sales Data

• Most Important Factors for ARV Comps

• Finding Comparable Sales for ARV

• Square Footage and Estimating ARV

• Proximity in ARV Estimation

• Property Type or Style

• Year Built and Effective Age of Property

• Select Your Best Comparables

• Your Current Competition: Active Listings

• Asking Price Versus Sold Price in ARV Estimation

• Why Get Access To MLS

• Warning: Lack of Comparable Sales

• Value of Upgrades

• Market-Based Adjustments

• Stable versus Changing Markets

• Income Properties vs. Owner-Occupant Properties in ARV Estimation

• Essential Tools for Finding ARV Comps

• How Accurate Are Automated Valuations in ARV Estimation?

• How to Get Help Estimating ARV with Comparable Sales

• Buyer's Eyes in ARV Estimation

Why Use Comparable Sales to Determine ARV

When you’re planning to flip a property or utilize the BRRRR strategy, understanding its ARV is essential before making an offer.

One of the best ways to estimate the ARV is by reviewing comparable sales, or “comps,” of similar properties that are also in top condition. Or, make adjustments for condition if you can’t find enough comparable sales.

Comps ideally show you what similar, fully renovated properties in the area have recently sold for, giving you a sense of what your property could sell for after repairs, upgrades and improvements you’ve made.

• What Will the Property Be Worth After Repairs? - You need to know if your investment will be profitable. Estimating the ARV helps you determine potential profit margins and whether the deal makes financial sense.

• How Do You Know? - Look at recent sales of similar properties to what your property will be like after you improve it and its in top condition to see what similar, fully renovated homes are selling for.

• Compare Apples to Apples - Don’t compare your future renovated property to homes that are not similar or not in the same condition. For an accurate ARV, the properties need to be similar in size, condition (after repairs), and location.

• Identical Properties Should Sell for Similar Prices - If two properties are the same in every way, you’d expect them to sell for about the same price. By matching the features and quality of comparable renovated homes, you can better estimate your property's ARV.

• What Makes Properties Comparable? - To determine if a property is comparable, look at things like the number of bedrooms and bathrooms, square footage, year built, location, and the level of finishes and upgrades.

Key Factors for ARV Comparable Sales Data

Not all properties are the same, so it’s crucial to focus on specific factors that will help you find the right comps for estimating your property's ARV. By looking at data from properties that are similar in key areas and have been recently renovated or are in top condition, you can get a clearer picture of what your property could sell for after repairs.

Here are the factors to consider when comparing properties for ARV:

• Same or Very Similar Area or Location - The closer the properties are in location, the more relevant the comparison will be.

• Same or Very Similar Beds/Baths - The number of bedrooms and bathrooms should be consistent across the properties you compare. If you're adding a bedroom or bathroom during renovations, include comps that reflect these changes.

• Similar Year Built and Effective Age - Homes built in the same era tend to have similar construction materials and styles. However, if you're updating the property extensively, consider its "effective age" after renovations.

• Similar Square Footage - Compare properties with similar square footage to what your property will be after any additions or expansions.

  • Adjust for Finished Basements or Additions - If you're finishing a basement or adding space, factor this into your comparisons. Look for comps with similar features.

  • Use Price per Square Foot for Minor Differences - Use price per square foot to account for small differences in size, but adjust separately for significant changes.

• Similar Lot Size and Zoning - Ensure the lot size and zoning regulations match, as these influence the property's potential use and value after improvements.

• Similar Property Style and Quality of Finishes - Compare your property to others with similar architectural styles and levels of finish. If you're upgrading to high-end finishes, look for comps that have done the same.

• Similar Condition After Repairs - Focus on properties that are in the condition your property will be after renovations. Avoid comparing to outdated or fixer-upper homes.

• Similar Extras and Amenities - Features like garages, pools, updated kitchens, or smart home technologies can add value. Make sure your comps include similar amenities if you're adding them.

Most Important Factors for ARV Comps

When estimating the After Repair Value of a property you're planning to flip or apply the BRRRR strategy to, certain factors carry more weight than others. Focusing on these key elements ensures that the comps you select provide an accurate reflection of what your renovated property could sell for or appraise at after repairs.