A lot of real estate investors focus heavily on the After-Repair Value (ARV) when pitching a deal to lenders or brokers. ARV matters. But there’s a lot more nuance when professionals like us underwrite your transaction, especially if it is a transitional loan to renovate and sell or renovate then transition to a permanent loan
Most private lenders don’t lend based on ARV. They lend based on cost.
Let’s break it down:
You might say:
“The ARV is $2.0M. I’m only borrowing $1.0M. That’s just 50% ARV!” What a deal, right?
But if your total project cost—purchase + rehab/renovation + work already done—is $1.1M, and you’re asking for a $1.0M loan, the lender sees it differently:
Loan-to-Cost (LTC)=
Loan Amount Requested
Divided by
The Total Project cost = 1,000,000/$1,100,000 = 90.9% LTC
Most lenders cap LTC at 80-90%. That means they’ll fund 80-90% of your project costs, not just cut a check based on what the property might be worth down the road.
What Goes Into the LTC Formula?
Numerator = Loan amount you’re requesting
Denominator = Total project cost:
-
Purchase price
-
Rehab budget
-
Capital already spent (renovation work done before loan)
It has nothing to do with:
-
Your existing loan balance
-
How much profit you’ll make
-
How “safe” the ARV seems
Why Do Lenders Use LTC?
Because they want to know:
“How much skin does the borrower really have in the deal?”
Borrowers who inject real capital upfront tend to be more committed—and more likely to finish the project and repay the loan.
Bottom Line:
A safe ARV doesn’t guarantee loan approval.
Lenders underwrite your costs, not just your upside.
If you’re getting capped or asked to bring in more cash, it’s not personal.
It’s just how LTC works.
Ready to structure a deal the right way?
If you want to avoid surprises in the loan process and present a package lenders will actually fund, let’s talk. I help real estate investors build smarter capital stacks and close faster—without wasting time chasing loan amounts that won’t pencil.
DM me, email me, or book a call in the link below —and let’s make sure your next project gets funded the first time around.
https://cre.marcelobermudezinc.com/
