How after-repair value sets your loan amount, your cash to close, and your profit, plus the 70 percent rule, draw schedules, and the holding costs investors forget.
After-repair value is what the property will be worth once the renovation is finished. Everything else on a fix and flip loan is downstream of that single figure. Your maximum loan amount, your cash to close, your profit, your exit. Get ARV right and the rest of the math takes care of itself. Get it wrong and no amount of hustle on the rehab saves you.
Here is the uncomfortable part: ARV is an estimate, and it is an estimate made by someone with a financial interest in it being high. That someone is usually you. Investors do not typically lose money on flips because they cannot manage a contractor. They lose money because they fell in love with a comp three blocks away that had a finished basement.
Lenders know this, which is why they order their own appraisal with an as-repaired value opinion and underwrite to that number rather than yours. If your ARV and the appraiser's ARV disagree, the appraiser wins. Budget for that possibility before you close, not after.
Fix and flip lenders constrain leverage two ways at once, and whichever binds first is the one that governs.
Say you are buying at $180,000 with a $55,000 rehab, and the ARV comes in at $320,000. Total cost is $235,000. At 85 percent LTC, the lender would go to $199,750. At 70 percent LTARV, they would go to $224,000. The LTC cap binds first, so $199,750 is your loan and roughly $35,250 plus closing costs comes out of your pocket.
Now suppose the appraiser comes back at $270,000 instead of $320,000. At 70 percent LTARV, the cap drops to $189,000, and suddenly you are bringing $46,000 to a closing you budgeted $35,000 for. Same property, same rehab, same day. That is why ARV discipline is not an academic exercise.
Our ARV and maximum offer calculator runs both constraints at once and shows you which one is binding.
The oldest screen in flipping: do not pay more than 70 percent of ARV minus your renovation budget. On a $320,000 ARV with a $55,000 rehab, that is a maximum offer of $169,000.
The rule exists because it bakes in a margin for the three things that always cost more than expected: the rehab, the holding period, and the sale. It is a screening tool, not a law of physics.
Reasons to pay above it, carefully: a genuinely light rehab where your cost certainty is high, a market moving fast enough that your comps are stale on the low side, a property you can exit as a rental instead of a sale if the market turns, or a wholesale relationship where the volume justifies a thinner margin. Reasons that are not good enough: you already spent three weekends looking, or a wholesaler told you it was a great one.
Rehab funds are not handed to you at closing. The lender holds the renovation budget and releases it in draws as work is completed and verified, usually by a third-party inspection or photo documentation.
That means you front the work and get reimbursed. Your first draw request typically comes after a meaningful chunk of work is done, so plan on carrying the initial phase yourself. Investors who run out of working capital in month two are almost always investors who assumed the rehab budget would be liquid on day one.
The other quiet budget line is carry. Interest, taxes, insurance, and utilities run every month whether the drywall is up or not. A four-month project that becomes seven months does not cost you three months of patience. It costs you three months of everything.
Fix and flip loans are short. Twelve to eighteen months is typical, and interest-only for the term. That structure is fine as long as you know how you are getting out.
Two exits, and you should be able to name yours out loud before you sign:
The investors who get in trouble are the ones who planned to sell, could not, and had never checked whether the property would support a refinance. Run the DSCR math on the front end even if you fully intend to sell. It costs you ten minutes and it is the difference between having a second option and having a problem.
Send us the scenario and we will tell you what is financeable and what is not.