The Arrived Valuation estimates the current value of each share of a property. They are created by taking the current property value estimate and factoring in the LLC’s assets and liabilities, such as loan balance and cash reserves. Reducing cash reserves from starting operations and servicing loans can initially negatively impact the share valuation. The Arrived Valuation value may go up or down, and the actual investment returns will largely depend on the property’s eventual sale price at the end of the five-to-seven-year or five-to-15-year hold period.
Given the calculation method, three potential causes exist for the Arrived Valiation dropping below the initial $10 value.
Lower Cash Reserves: The Arrived Valuation is calculated using all the assets and liabilities owned by the LLC. If the cash reserves become reduced, the Arrived Valuation will be reduced as well. The cash reserves can be affected by servicing loans, vacancy while the property is initially being marketed to investors or repairs and maintenance costs.
Lower Property Value: The property value has decreased per a third-party valuation estimate. These professional third-party data sources estimate the home's value, and then our investments team does a manual review to ensure there are no extreme outliers in the data. If the property value is estimated to be lower than the purchase price, the Arrived Valuation will reflect that and be reduced.
Pro-rated Upfront Fees: The Arrived Valuation also includes some adjustments for the upfront fees involved in the investment. The Arrived sourcing fee and the other upfront investment costs are meant to be for an investment period of at least five years. Accordingly, we structure these costs so that the Arrived Valuation reflects only the prorated fees up through that time.
Vacation Rental property Arrived Valuation differs from single family residential Arrived Valuation in several ways. For one, it is important to remember that vacation rentals require high initial costs to start operations and a significantly longer ramp-up time to start generating income. This may lead to a common trend of initial Arrived Valuation reduction followed by a recuperation period over the lifetime of the investment. This is because the Arrived Valuation of each property takes into account not only its property value but also its cash balance, which is reduced by the initial expenses. To learn more about this dynamic, visit: How Is Arrived Valuation different for Vacation Rentals?
While the Arrived Valuation value may go up or down in the short term, the actual investment returns will largely depend on the property’s eventual sale price at the end of the investment period. That is why we maintain that real estate performs best as a long-term investment, all while investors continue earning dividends through rental income.
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