After-repair value (ARV) is a property's estimated market value once all planned renovations are finished, not its value the day you buy it. It is the number a rehab budget, a refinance loan, and a flip exit price are all built on, so getting it wrong throws off everything downstream.
In practice
You estimate ARV the way an appraiser would: by pulling recently sold, fully renovated homes that match your subject property on bedrooms, bathrooms, square footage, and neighborhood, then averaging their sale prices per square foot. Say you are looking at a tired 1,200 square foot single-family house, and three renovated comps within half a mile sold for $210, $225, and $215 per square foot. The average is about $217 per square foot, so your ARV is roughly 1,200 × $217, or about $260,000.
That ARV then drives the deal. A common screen is the 70% rule: a buyer pays no more than 70% of ARV minus the repair budget. On a $260,000 ARV with $40,000 of planned work, that is (0.70 × $260,000) − $40,000, which comes to $142,000 as the most you would offer. Lenders lean on ARV too. A cash-out refinance at 75% loan-to-value against a $260,000 ARV would lend up to $195,000, which is the figure that decides whether you can pull your renovation cash back out.
Why it matters to a small landlord
Even if you never flip, ARV decides whether a buy-rehab-rent plan actually recycles your money. The whole appeal of the BRRRR approach rests on the refinance appraisal landing at or above your estimate, because that appraisal is what returns your down payment and rehab cost so you can do it again. If your ARV was optimistic by 10%, the bank lends less, you leave cash trapped in the deal, and your cash-on-cash return collapses. The honest move is to run the deal twice, once on your ARV and once on an ARV that comes in 10% light, and only buy if both versions still work. A conservative ARV is cheap insurance against an appraisal you do not control.
ARV sits next to a few terms worth knowing together. It is distinct from an appraisal, which is one licensed professional's opinion of value rather than your own pre-purchase estimate. It is the engine behind the BRRRR method, and it is the number a hard money loan is often sized against, since short-term rehab lenders frequently cap their loan at a percentage of ARV rather than the purchase price. Treat all three as the same conversation about what a place is worth after the dust settles.