The Showdown: ARV vs LTV vs LTC

If you’ve been in real estate for a while, you’re more than familiar with these terms. ARV, LTV, LTC, LOI, ROI, NRA…Ok that last one was a trick, but let’s put the Investopedia down and take a hard look at what these terms mean for you.

Let’s make a scenario. You’ve just put the following property under contract (that was easy!) and now you’re looking for a loan. Let’s dive into what the deal would look like in three different scenarios.
Note: These values are estimates as if rates and terms are static, these do not represent how you would typically receive an interest rate or LTV, LTC, etc.

  • Purchase Price: $200,000
  • Rehab Costs: $100,000
  • After Repair Value (ARV): $500,000
  • Total Investment Cost: $300,000

The Loan-To-Value Deal (LTV)

Some call this the standard private/hard money loan, and it’s possibly the easiest to calculate in your head. In this situation, the lender will determine your loan based off the “as-is” value, or what the property is worth today. Let’s say the lender is able to give you 75% LTV on the purchase and 75% on the rehab.

Loan on Purchase Price: $200,000 x 75% (0.75) = $150,000
Loan on Rehab Costs: $100,000 x 75% (0.75) = $75,000
Total Loan Amount: $225,000

Pros: Typically, LTV deals are seen as lower risk so they can be associated with lower rates and fees, though your results may vary depending on the lender.
Cons: More of an out-of-pocket expense.

The After-Repair-Value Deal (ARV)

ARV is an estimation of what the value of a property will be once all the repairs you’re looking to put in have been completed. This number is calculated based off of comparative properties (comps) in the same neighborhood or similar neighborhoods and through several other measures.

Loan on After Repair Value: $500,000 x 75% (0.75) = $375,000
Total Loan Amount: $375,000

Pros: Higher loan amount and less money out of pocket.
Cons: Typically requires track record of experience, a higher credit score, significant cash reserves, and/or more origination points.

The Loan-To-Cost Deal (LTC)

This is very similar to our loan-to-value deal. It is based on both purchase price and rehab. Lets consider a lender willing to offer 75% LTC on the project.

Loan on Total Investment Cost: $300,000 x 75% (0.75) = $225,000
Total Loan Amount: $225,000

You can see we came to the same value as our LTV deal.

Pros: Includes both acquisition and rehab.
Cons: Same as LTV, out of pocket costs.

To wrap it up, each deal type has features that are suitable to different opportunities. It’s important to find out what works best for your scenario.