LTV and ARV?

[Frank Caraccia]

Hello everybody!

I was hoping that someone can explain the differance between the 2 as clear as possible. I think im overthinking it but i could use some help. I know arv is after repair value. So a lender will lend based on what the property is apprasied for? LTV is loan to value, Ltv im more unsure of the meaning can some one explain what ltv means? Thanks in advance!

[David Beard]

Any loan is going to be made on the basis of LTV, it's just a matter of how the "V" is established.

In a typical bank loan, V is considered the lower of purchase price or appraisal, where the appraisal is completed on an "as is" basis (no assumed repairs).

In a hard money loan (or occasionally a rehab loan with a bank, but these are getting very scarce), V will be based on a "subject to" appraisal, or what the home will be worth when renovated in a manner to bring it into the top tier of condition for that retail market.

Hard money lenders might use the expression Loan-to-Cost (LTC) as well, which reflects the total investment that will be made in the property (purchase price + rehab costs).

So a hard money lender might say "we'll loan up to 65% ARV, but no more than 90% LTV/LTC". That means that they want the borrower to fund at least 10% of the total project costs with their own money, reducing "walk away risk".