Fix and Flip Financing: ARV and Cash Contribution

What ARV means in a rehab financing discussion

After-repair value, or ARV, is an estimate of what the property may be worth after a defined renovation is completed. It is not the current value, a promised resale price or verified profit. Support it with relevant comparable sales and a scope of work consistent with those properties.

Keep the comparison practical: property size, location, condition, layout and sale timing matter. If your resale plan assumes a higher finish level, include that work in the renovation budget. An ambitious resale estimate does not pay an unexpected construction bill.

Distinguish LTV, LTC and loan-to-ARV

Loan-to-value compares financing with an accepted property value. Loan-to-cost compares financing with the project costs a lender recognizes. Loan-to-ARV compares financing with the accepted completed-value estimate. A loan may be limited by more than one test, and “eligible cost” is not always the same as your total budget.

The CFPB’s explanation of LTV describes the loan-versus-appraised-value relationship. That general definition is useful here; consumer mortgage examples on its page do not establish requirements for a business-purpose rehab loan.

Worked example: why the ARV limit can control

In this example, $380,000 × 75% = $285,000. If that is the binding limit, a $300,000 purchase-and-rehab plan has a $15,000 gap before closing costs, fees, interest and other requirements. This is arithmetic using an assumed limit, not a quote, eligibility finding or representation that Viera will fund this amount.

Your cash contribution can exceed the stated down payment

Ask for a breakdown of acquisition funds, renovation holdback, costs paid at closing, lender-required reserves, and costs paid outside closing. Do not assume all committed loan proceeds are available on day one. A rehab holdback may be released as work is completed and conditions are satisfied.

• Confirm whether draws reimburse completed work or fund work in advance.
• Ask about inspection, draw and wire charges.
• Budget for insurance, taxes, utilities and interest while you hold the property.
• Keep contingency separate from your expected resale profit.

Stress-test the resale plan

Using the example above, suppose resale value falls from $380,000 to $350,000. At the same assumed 75% limit, supported financing would be $262,500 instead of $285,000. That illustrates how valuation changes can affect leverage; it does not predict a lender’s response or mean an existing loan automatically changes.

Also test a longer holding period and a repair overrun. Selling costs and unpaid debt reduce your net proceeds. ARV minus purchase and repairs is only a rough project spread, not take-home profit.

Prepare a stronger fix-and-flip inquiry

Send the purchase price, itemized rehab scope, completed-value support, closing target, experience and available cash contribution. Be clear about tenants, access, permits and structural work. Read the investment property loan checklist before requesting preliminary terms.