What Is ARV and How Do Lenders Use It to Set Your Loan Amount?

ARV stands for after repair value, and it is the estimated market value of a property once all your planned renovations are done. On a fix and flip, it is the single most important number you will touch, because everything else is built on top of it. Your loan amount, your maximum offer, your profit, all of it flows from the ARV. Get this number wrong and every other number is wrong with it.

What ARV Means

The simplest way to think about ARV is to ask one question: if I finished this renovation today, to the standard I am planning, what would a buyer pay for it? That answer is your ARV. It is not what the house is worth now in its tired condition, and it is not what you hope it sells for. It is what the finished product is worth in today's market.

How to Pull Comps the Right Way

ARV is built from comparable sales, or comps. These are recently sold homes similar to what yours will be once it is renovated. The tighter your comps, the more reliable your ARV. What makes a good comp:

• Recently sold, ideally within the last 90 days, so the data reflects today's market
• Close by, within about half a mile and in the same neighborhood
• Similar in square footage, bed and bath count, and finish level
• Renovated, finished to the standard you are planning, not another fixer
• At least three of them, so you are averaging real data, not leaning on one sale

Here is where people get into trouble. A sold home one neighborhood over, on a nicer street, or in a better school zone is not your comp, even if it looks similar on paper. Pulling comps that are a little too nice is the fastest way to talk yourself into an ARV the market will not actually pay.

How Lenders Use ARV to Set Your Loan

Hard money lenders cap your loan at a percentage of ARV. On a fix and flip, that is often up to about 75 percent, with most lenders landing somewhere in the 65 to 75 percent range depending on the deal and your experience.

Say the ARV is $400,000 and the lender goes up to 75 percent. Your maximum loan is $300,000, and that has to cover both your purchase and your rehab. If your purchase price is $200,000 and your rehab is $80,000, your total project cost is $280,000, which sits comfortably under the $300,000 cap. You have a cushion. But if your numbers crept up to $310,000 in total cost, you would be over the cap, and every dollar past it comes out of your pocket. That gap is exactly why your ARV has to be honest.

ARV vs. As-Is Value

Do not confuse the two. As-is value is what the property is worth today, in its current distressed condition. ARV is what it will be worth after the work is done. Some lenders quote their leverage against as-is value and others against ARV, and that difference matters.

A 90 percent loan against as-is value can actually be more conservative than a 75 percent loan against ARV, depending on the spread between the two. Never compare the percentages alone. Run the actual dollar amounts and see which one puts more money in the deal.

The Mistake That Wrecks Deals: An Inflated ARV

The biggest ARV mistake I see comes from brand-new investors who are not working with a good agent and do not have a good lender in their corner. They get a deal from a wholesaler, see the ARV printed on the marketing sheet, and run their whole deal off that number. Here is what most people will not tell you. You cannot just trust a wholesaler's ARV.

There are some rainbow unicorn wholesalers out there who send legitimately good deals with accurate numbers. They exist. But I will be honest with you. In my experience, easily eighty percent of the wholesalers I meet and work with are not giving you an accurate ARV or an accurate comparable sale price, because they are incentivized to inflate it. The higher the ARV looks, the higher the price they can sell that property for. That is just the math of their business, and it is your job to check their number, not adopt it.

It matters because the lender does not use your ARV either. They order an appraisal, and they use the appraiser's number. If you built your whole deal around a $400,000 ARV and the appraisal comes back at $370,000, your loan just shrank, and you have to cover the difference in cash you may not have planned for.

This is exactly why I run a CMA report on every single deal that comes through my pipeline. I am not an appraiser, but back when I worked as a direct lender, I saw the appraisal process all the way through on a lot of files, so I run my comps the way I think an appraiser actually will when they walk that property. Then I send those comps to the borrower. If my number comes in under what they were expecting, I do not just deliver bad news. I send two or three term sheets so they can see their cash to close if the appraisal hits their ARV, if it hits my more conservative ARV, and if it comes in low. That way nobody gets caught off guard at the closing table.

The lesson holds whether you have a broker running comps for you or not. Lean conservative on ARV and build in a buffer. An optimistic ARV does not make a deal better, it just hides the risk until the appraisal exposes it. If your deal only works at the very top of your ARV range, it does not really work. Pressure-test it against the lower end before you ever make the offer.

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