Understanding Loan-to-Value (LTV) and After Repair Value (ARV) in Renovation Projects

When it comes to real estate renovation projects, two of the most critical metrics that investors must understand are Loan-to-Value (LTV) and After Repair Value (ARV). Whether you're a fix-and-flip investor or planning a buy-and-hold strategy, these figures can make or break your ability to secure financing and ensure a profitable return.

In this guide, we'll break down what LTV and ARV mean, how they're calculated, and why they matter in real estate investment loans.

What Is Loan-to-Value (LTV)?

LTV is the ratio of the loan amount to the current market value of the property.

Formula:

LTV = (Loan Amount ÷ Property Value) × 100

Example:

If you’re borrowing $150,000 to purchase a home worth $200,000:

LTV = (150,000 ÷ 200,000) × 100 = 75%

Lenders use LTV to assess risk. A lower LTV indicates lower risk for the lender and typically results in better terms for the borrower.

What Is After Repair Value (ARV)?

ARV is an estimate of what a property will be worth after renovations are completed.

Formula:

ARV = Current Property Value + Value of Renovations

Example:

If a home is worth $200,000 now and the planned renovations add $50,000 in value, the ARV is:

ARV = 200,000 + 50,000 = $250,000

ARV is crucial for determining how much profit you can make and how much financing you may be eligible for with fix-and-flip or rehab loans.

Why LTV and ARV Matter for Investors

At Westpark Loans, we use both LTV and ARV to determine how much we're able to lend for various products like:

[if !supportLists]· [endif]Fix-and-Flip Loans

[if !supportLists]· [endif]Hard Money Loans

[if !supportLists]· [endif]Bridge Loans

Here’s how they impact your deal:

Common Lender Guidelines

· LTV Limit: Up to 70–80% of the current value

· ARV-Based Lending: Some lenders will fund up to 90% of purchase + 100% of rehab, not exceeding 75% of ARV

Knowing these limits helps you understand how much of your own capital you need upfront.

Pro Tip: Use Both Metrics in Deal Analysis

Let’s say you're considering a flip:

· Purchase Price: $180,000

· Rehab Budget: $40,000

· Estimated ARV: $280,000

· Loan Needed: $200,000

LTV = 200,000 ÷ 180,000 = 111% → Not fundable by LTV

ARV = 200,000 ÷ 280,000 = 71.4% → May qualify for ARV-based loan

In this case, a hard money ARV loan is your best option.

How to Accurately Estimate ARV

1. Comparable Sales (Comps) – Look for recently sold homes in the area with similar features.

2. Professional Appraisal – Get an experienced appraiser’s opinion post-renovation.

3. Work with Local Agents – Realtors can provide insights into value-add upgrades.

Final Thoughts

Both LTV and ARV are essential tools in evaluating the financial strength of your renovation deal. LTV helps you understand how much you can borrow right now, while ARV helps determine the potential value after upgrades.

At Westpark Loans, we specialize in investor-focused financing that considers both these metrics to provide customized solutions.

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