The ARV formula that the appraiser will use is quite simple. They use the purchase price and then they add the added value as previously described.

(Purchase Price) + (Value From Renovations) = After Repair Value

The 70% Rule

The 70% rule is a guideline in the real estate investing business that states no bid price at the beginning of a project should exceed 70% of the ARV minus estimated repair costs.

(ARV x 70%) – Estimated Repairs = Maximum Purchase Target

This is a rule of thumb that real estate investors should follow which will allow them to make a 30% return on their investment (ROI).

Rehab Financial uses a rule of 70% when it comes to lending on a project. Once RFG receives the ARV from the appraiser, we calculate 70% to determine the maximum that we are willing to lend.

After Repair Value x 70% = Maximum Loan Amount