When you submit a Fix/Flip to a lender which part of the deal gets the most scrutiny

Question

I think it is useful to view underwriting as a connected story rather than a checklist of isolated ratios.

A lender may be trying to answer questions such as:

· Borrower: Does the investor have the experience, liquidity, reserves, credit profile, and execution history to complete the plan?

· Property: Does the location, condition, property type, marketability, and as-is value support the transaction?

· Purchase price: Is the acquisition basis reasonable relative to the market and the planned improvements?

· Rehab: Is the scope complete, are contractor numbers supportable, and is there enough time and contingency?

· ARV: Do relevant comparable sales support the projected finished value?

· Leverage: How much debt is being requested relative to cost and projected value? Exact LTC and LTARV calculations and limits vary by lender and program.

· Exit: What is the primary repayment plan, and what happens if the rehab, sale, or refinance takes longer than expected?

For the property-selection side, our earlier Investor Guide, "Choosing a Fix & Flip Property," covers location, condition, marketability, and value considerations. For the rehab side, "Proven Strategies to Maximize Fix & Flip Returns" provides a companion look at planning, contractors, budgeting, and execution.

For investors who have funded several flips: which underwriting issue most often changes the original loan structure - borrower liquidity, rehab scope, ARV, leverage, or exit strategy?

Divin Kanyama · Answer

@Charles Walker I agree that underwriting is a connected story. In my experience, the greatest scrutiny usually falls on the assumptions that determine whether the lender gets repaid: ARV, rehab scope, borrower liquidity, and exit.

ARV and scope often change the structure first because they drive leverage and required cash. If the comps are weak, the budget is thin, or contingency is inadequate, proceeds usually come down. Liquidity becomes equally important when the borrower must fund overruns, carry costs, or delayed draws.

The strongest file is internally consistent: the purchase basis leaves room for the work, the scope supports the ARV, the timeline matches the project, and the borrower can survive a slower or more expensive execution. A credible backup exit matters too—especially when the primary plan depends on a quick sale or aggressive refinance.

James Jones · Answer

Charles, in my experience it is the ARV, and it is not close. The borrower and the purchase price are facts. The ARV is the one number in the file that is an opinion, so it is the one that gets picked apart. I BRRRR single-family in Memphis — buy under $100K, ARV $180K to $265K — and I comp off sold prices only: same ZIP, similar beds, baths and square footage, last six months when I can get it. When my ARV is built that way, the leverage conversation gets easy, because a DSCR refi at 70 to 80 percent LTV against a real number is boring. Deals get re-cut when the ARV needs list prices to work.

Matthew Morrow · Answer

@Charles Walker fair point. I'm speaking to what we're seeing in our part of PA, not every market in the country. Agree the scope and the ARV have to tell the same story. If the comps are fully renovated and the scope is paint and carpet, that gap is exactly where a lender is going to push. Interested to hear what the lenders say.

Charles Walker · Answer

Matthew, the comps behind the ARV deserve close attention. I would be careful about applying “across the board” to every market, but your point raises a useful question: does the projected value reflect recent comparable sales and the condition the renovation will actually deliver?

The scope and ARV also need to support each other. If the valuation assumes an updated kitchen, another bathroom, or added living space, the budget and timeline need to account for that work.

I’d welcome lenders’ perspectives on where they are seeing the largest gaps between submitted ARVs and supported values.

Matthew Morrow · Answer

@Charles Walker from the investor side, the ARV is where I've seen the most pushback lately. Appraisals are coming in light across the board right now, so a lender has every reason to lean on the comps behind the number. Behind that, a rehab scope that's detailed and realistic tends to answer a lot of the other questions before they get asked. Interested to hear what the lenders here say.

When you submit a Fix/Flip to a lender which part of the deal gets the most scrutiny

5 Replies