What it is
After repair value is the resale price of the property you intend to create, not the one you are buying. It is an appraisal of a house that does not exist yet, built from the closest thing available: recent sales of homes that already look the way yours will look when the work is finished. Because ARV sits at the head of the calculation chain, every downstream number inherits its error. The maximum offer, the rehab budget that fits, the refinance proceeds, and the profit projection are all fractions of this one estimate.
How it is calculated
Pull closed sales — not active or pending listings — from the last three to six months, within a tight radius, in the same school attendance area, and of similar size, bedroom count, and era. Adjust for the differences that remain: a comp with an extra bathroom or a finished basement is worth more than your finished product will be. Three comps at $215,000, $220,000, and $228,000 on similar square footage point to an ARV around $220,000, and the sensible move is to underwrite toward the low end of that range rather than the top.
ARV = the price a comparable finished home sells for, adjusted for differences in size, condition, and location. Three comps at $215,000, $220,000, and $228,000 on similar square footage support an ARV near $220,000.
How investors actually use it
ARV drives the offer through the 70% rule and the maximum allowable offer, and it drives the exit through either a sale or a refinance. In BRRRR it matters twice, because the refinance loan is a percentage of appraised value and the appraiser will run the same comparable-sales exercise you did — which makes your ARV work a rehearsal for theirs. Investors also use ARV to size scope: if the comps that sell at your target price all have updated kitchens and a second bath, the budget has to include those, and if they do not, spending on them buys nothing back.
The common mistake
Comping to aspiration rather than to the market. Using active listings tells you what sellers hope for, not what buyers paid. Reaching across a highway, a school boundary, or into a different subdivision imports value the property cannot claim. And renovating past the comp set — putting a $40,000 kitchen into a neighborhood whose ceiling is $220,000 — raises cost without raising ARV at all. The discipline is to let the comps set the finish level and the price, then build backward to what you can pay.
Put it to work
Related terms
- 70% rule — A flip and BRRRR guideline: pay no more than 70% of the after-repair value minus estimated rehab.
- MAO (maximum allowable offer) — The highest price you can pay and still hit your target profit, most often derived from the 70% rule: ARV times 0.70 minus rehab.
- BRRRR — Buy, Rehab, Rent, Refinance, Repeat — a strategy for recycling one pool of capital across multiple rentals.
- Cash-out refinance — Replacing an existing mortgage with a larger new loan and taking the difference in cash, tapping built-up equity without selling.