Knowing how to calculate ARV by analyzing comparable properties ("comps") is essential to succeeding in the house flipping business. Comps are homes in the vicinity of your fix-and-flip property that were sold in the past three months. Analyzing local comps will give you an idea of what buyers are looking for and what they might be willing to pay for your property after you have made all of your planned improvements.
How to Calculate ARV: What to Look for in a Fix-and-Flip Comp
To get the best estimate of your fix-and-flip property's after-repair value (ARV), you will want to compare it to homes that are similar to yours in the following aspects:
- year built
- number of bedrooms
- number of bathrooms
- interior square footage
- amenities (pool, jacuzzi, sauna, fireplace, deck, laundry, etc.)
- finishes (countertops, cabinets, flooring, fixtures, etc.)
- lot size
- landscaping/curb appeal
Make sure the comps you select are not distressed properties. They should be representative of the condition your fix-and-flip property will be in after you have made improvements.
Finding Comps Near Your Fix-and-Flip Property
If you have access to the local MLS (a private list typically restricted to real estate agents or brokers), you can find detailed information about any listed property. If you don't have MLS access, you can find the information you need on free public real estate sites such as Zillow and Realtor.com.
Record Your Findings
Using a software spreadsheet, or even a hand-drawn matrix, create an organized visual representation of the specific features each recently sold property offered buyers. Examining the data side-by-side, you can easily compare the comps' features to the features your property will offer buyers when your improvements are completed.
The example below compares three comps to a sample fix-and-flip property in Woodland Hills, CA:
Sample Fix-&-FlipComp #1Comp #2Comp #3Property Address123 Sample / 91364234 Compone 91364345 Comptwo 91364456 Compthree 91364Property StyleCraftsmanRanchRanchCraftsman# of Stories1111Year Built1975199819751970Square Footage2,1752,3302,2001,990Lot Size.36 acre.33 acre.25 acre.40 acre# of Bedrooms3333# of Bathrooms220.127.116.11Laundry LocationLaundry RoomLaundry RoomLaundry RoomLaundry RoomParking2-Car Garage2-Car Garage2-Car Garage2-Car GarageHeat TypeElectric Wall HeatCentral GasCentral GasCentral GasAir CondiioningNoneCentralCentralCentralOther AmenitiesMaster w/en suite & walk-in closetKitchen reno & master w/ en suite & walk-inFull reno. Master w/ en suite & walk-in. Deck off master.Full reno. Master w/ en suite & walk-in. Fenced yard. Gas fireplace in LRSale Price$749,999$949,500$989,999$999,500Price per Sq. Ft.$344.83$407.51$422.72$502.26Location NotesK-5 school =9,
middle school = 7, no vacant homes on block.Same as subject property.Same as subject property.Same as subject property.
A side-by-side comparison shows that the house with the highest sale price is comp #3, a fully renovated 1970 Craftsman with a large fenced yard. This is good news since the subject fix-and-flip property is most similar to the Craftsman comp in style, square footage, and lot size.
It is interesting to note that the lowest-priced comp is a larger, newer ranch with a kitchen upgrade. The significantly lower sales price on this larger, newer home could suggest buyers in this market are willing to pay more for a fully renovated older home vs. a newer build with added on upgrades.
With a central HVAC upgrade and full interior renovation, the sample fix-and-flip property could potentially sell in the $990K - $999K price range. On paper, there appears to be potential profit in flipping the subject property.
This is the point in your research where a walk-through of the subject property and a visual examination of the neighborhood and comps is advised in order to make a more precise determination of potential value. Be mindful that school district boundaries can significantly affect value, so do your homework thoroughly now to avoid surprises later.
For a step-by-step "how-to" on what to look for during your walk-through, how to calculate ARV, evaluating your property's as-is condition (and needed improvements), and where to find school quality scores for your fix-and-flip property and comps, download our free e-book Evaluating Fix-and-Flip Property Value & Condition.