I'm a buy and hold investor as well. And while I agree, we can play a little fast and loose with the investing rules in terms of making the numbers work based on the ARV, the one thing I wouldn't want to do is start buying solely on the ROI.
If you buy a 150k for 140k, what exit strategies does that leave you with? What kind of loans are you limited to? And how much money will you have to put into those types of deals?
The more you put in, the fewer number of houses you're going to be able to buy - unless you have a ton of money sitting around. Which, if you do, then you're right, investing based on ROI is all that matters.
But with my model, I don't have the kind of capital to sink 20 to 30k in a down payment and pay the rehab costs (another 15 to 20k?). After a couple of houses, I'd be done pretty quick and for awhile......
So thats why that rule of being "all in" (i.e purchase plus rehab) at 70% LTV or better is so critical to buy and hold investing. Thats typically what most lenders will lend to you on a house. So, technically, if you want to pull that money back out, you can. Or if you do it on the front end with hard money and a refi, you can avoid putting too much of your own money into the deal in the first place.
As for market value, there's one and only one definition for market value when it comes to residential real estate (1-4 unit SFH) - and thats the estimated appraisal price of the home. That price is derived via the comps that have sold for similar houses. And it drives everything.
That being said, I would still consider going above 70% of the ARV on a deal if its for a house that I just really wanted to add to my portfolio. Maybe its in a super nice area that I know I'll never have a better chance to get into unless I'm willing to come out of pocket the 5 to 10% it would take to get to that 70% LTV number.
btw: I use 70% ARV and LTV interchangeably. To me, they are the same - just a matter of context. ARV is after repair value based on what its going to be worth AFTER I rehab it. I use this when discussing the deal value to my acquisition lender (hard money lenders). And I use LTV when discussing the deal to my end loan lenders that will be doing the refi out of the hard money loan. One cares about ARV, the other about LTV.
At the end of the day, that is one of the reasons us buy and hold investors can continue to take down deals in this market though. If the cash flow numbers work, we can pull out 5 to 10% on a deal to add the property. A flipper can't do that. If they do, they run the risk of not making anything on the deal. Or worse yet, they risk losing money on it.
