What Is ARV (After-Repair Value), and How Do Lenders Calculate It?

A rehab can run over budget and a flip can still make money. A flip bought on an after-repair value the neighborhood was never going to support has a much harder time, because the problem was locked in at the purchase price. ARV is the number every other number on a flip hangs from: what you offer, what you can borrow, and what you walk away with. It is worth getting right before you sign a contract, not after.

What ARV Actually Means

ARV stands for after-repair value. It is the price a property should sell for on the open market once your planned renovation is finished. Not what it is worth today, and not what you hope it will be worth. What a buyer would realistically pay for the finished house, given what similar finished houses nearby have actually sold for.

You will often see ARV written as a formula: the property's current value plus the value your renovations add. That is a fine way to think about it, as long as you remember a renovation is worth what buyers will pay for it, not what it cost you. The only reliable way to know that is a comparison: your house, as it will be, against homes nearby that already look that way and have already sold.

How Lenders Actually Calculate ARV

On a fix & flip loan, the ARV that counts is usually the one a licensed appraiser signs off on (some lenders use a broker price opinion or an in-house valuation instead). The appraiser does what is called an as-repaired, or subject-to, appraisal: they inspect the property, read your scope of work, and value the house as if that work were already done. Then they back that number up with comparable sales, or comps.

Not every recent sale nearby is a usable comp. These are the rules of thumb investors and lenders commonly use to decide which ones hold up.

No comp is a perfect match, so the appraiser adjusts each one for the differences: add value if the comp has one less bathroom than your finished house will, subtract it if the comp has a garage and yours does not. The adjusted sales are then weighed, with the closest matches counting most, to land on a single number.

Location does a lot of the work. In metro Atlanta, for example, an ARV that pencils in East Atlanta can be wrong for a similar-looking house in Clayton County; the county line matters as much as the mile. We cover that in more depth in Hard Money Loans in Atlanta.

Running Your Own ARV Before You Make an Offer

You should not wait for an appraisal to find out what the house is worth. By then you are under contract and have paid for the report. Pull the comps yourself first, using the same rules an appraiser will: closed sales, recent, close by, similar size, and renovated to the level your budget will actually buy. Here is how that plays out on a typical single-family flip.

Notice the ARV is not the average of the three comps, and it is not the highest one. The $335,000 sale was a little further out and a little older, so it gets less weight. The $325,000 figure is the number the closest, most recent matches support.

The gap between the $325,000 ARV and the $225,000 total cost is $100,000. That is not profit. Interest, points, insurance, taxes, utilities over the hold, and the cost of selling all come out of it. For a full breakdown of what the financing side adds up to, see The True Cost of a Hard Money Loan.

The 70% Rule, and Where It Comes From

Ask any flipper how much to pay for a property and you will probably hear the 70% rule: pay no more than 70% of the ARV, minus the cost of repairs. On the example above, that is $325,000 × 70%, or $227,500, minus the $55,000 rehab, for a maximum offer of $172,500. The $170,000 purchase price clears it.

The rule exists because that remaining 30% has to cover financing, holding costs, selling costs, and your profit, with some room for things to go wrong. It is a useful first screen. It is not a lending guideline, and it is not a guarantee. Investors commonly stretch it toward 75% in fast-moving markets and tighten it toward 65% in slow ones, and it is only as good as the ARV and rehab estimate you feed it. Use it to decide which deals deserve a closer look, then run the real numbers.

ARV, LTC, and LTV: Three Ways to Measure a Loan

ARV shows up in loan terms alongside two other ratios, and they measure different things. Each one divides the loan amount by a different number.

Many hard money lenders cap loan-to-ARV, commonly somewhere around 70% to 75%, and size the loan at the lower of that cap and a percentage of cost. On a Westlend fix & flip loan, leverage is quoted on cost: up to 90% of the purchase price plus the rehab budget, from $75,000 to $4,000,000, on 12 to 24 month terms. We lend on the strength of the asset and your exit strategy, and on a flip, the exit is the ARV. If the finished house will not comfortably cover the loan, the deal needs a lower purchase price, a tighter scope, or more of your own money in it, and it is better to find that out on the first call than at the appraisal.

ARV matters after the flip, too. If you plan to keep the property as a rental, the appraised value at the refinance largely decides how much of your cash you get back out. That handoff from a fix & flip loan to a long-term DSCR loan is the core of the BRRRR strategy, and it works only as well as the ARV you started with.

Four Mistakes That Inflate an ARV

• Pricing off list prices and online estimates. An asking price is what a seller hopes for, and an automated estimate does not know what the inside of the house looks like. Only closed sales tell you what a buyer actually paid.
• Building the ARV around the single best comp. Most neighborhoods have an outlier sale that went well above the rest. An appraiser looks at the full set of comps, and an outlier tends to get little weight.
• Comping a mid-grade rehab against high-end flips. If the comps have quartz, new systems, and an added bathroom, and your scope is paint, floors, and fixtures, your ARV is the lower number, not theirs.
• Assuming today’s value holds through the hold. A flip that takes nine months sells into the market nine months from now. In a flat or softening area, leave room in the ARV instead of underwriting to the top of the last quarter.

Common Questions About ARV

The Bottom Line

ARV is the most important number on a flip and the easiest one to talk yourself into. Build it from closed, recent, nearby sales of homes finished to the level your budget will actually deliver. Throw out the outlier, leave room for the market to move, and run it before you make an offer, not after you are under contract.

If you have a deal you are looking at, I would rather walk through the comps with you now than have you find out at the appraisal that the number was never there.

All figures and examples in this article are for illustration only and subject to underwriting approval. Loans are for investment purposes only and are not available for owner-occupied properties. Contact us to discuss your specific scenario.