ARV and the 70% Rule: How Fix-and-Flip Lenders Size Your Loan
After-repair value decides how much a flip lender will fund. How ARV is actually established, where the 70% rule helps and misleads, and the leverage math that decides your cash at closing.
Two flippers looked at the same street in the same month. The first underwrote his deal at a $410K after-repair value because "the neighbor sold for that in spring." The second pulled 4 renovated comps within half a mile from the last 90 days, landed at $385K, and offered accordingly. The lender's appraisal supported $382K. The first buyer's loan came in $25K short of plan 2 weeks before closing. The second closed in 10 days and made his number.
ARV is where flip deals are actually won. Everything else — the scope, the contractor, the timeline — executes against that number.
ARV is a comp set, not an opinion
After-repair value is the estimated market value of the property once your planned renovation is complete. On a lender's desk it is established 2 ways, and both matter:
- Your comps package. Recent — ideally under 90 days — nearby sales of properties in renovated condition, matched on size, bed/bath count, and finish level. This is your argument.
- The independent appraisal or valuation review. This is the number that sizes the loan. The lender's valuation, not yours, sets the ceiling.
The discipline is in the matching. A comp with a designer kitchen and a pool does not support your laminate-and-lawn renovation. Adjust for finish level honestly, because the appraiser will.
The 70% rule: a good filter, a bad budget
The 70% rule says: pay no more than 70% of ARV minus renovation costs. On a $385K ARV with $55K of rehab, the maximum offer is about $214K.
What the rule gets right: it forces margin for the costs investors forget — financing points and interest, insurance, utilities, taxes during the hold, agent commissions and closing costs on the sale, and profit. What it gets wrong: it is flat. In a market with 6% selling costs and cheap money, 70% is conservative. In a slow market with 8% selling costs and expensive short-term money, 70% is not conservative enough. Use it to kill bad deals fast at the offer stage. Never use it as the budget.
How the two leverage caps combine
Flip lenders cap the loan 2 ways, and the lower one wins:
- Loan-to-cost (LTC). Up to 90% of total project cost — purchase plus renovation — on qualifying files.
- ARV cap. Up to 75% of after-repair value.
Worked example with illustrative numbers. Purchase $210K, rehab $55K, project cost $265K, supported ARV $385K:
| 90% LTC | $265K x 0.90 | $238.5K |
| 75% of ARV | $385K x 0.75 | $288.75K |
| Loan sized at | lower of the two | $238.5K |
| Your cash to close | $265K - $238.5K | $26.5K plus costs |
On this deal, cost is the binding constraint. But drop the purchase to $150K on a heavier $100K rehab — project cost $250K, 90% LTC allows $225K, and now 75% of a $280K ARV ($210K) binds instead. Knowing which cap binds your deal tells you whether more renovation budget helps or hurts your cash position. The full term sheet lives on the fix-and-flip program page, and the process from intake to close is in the fix-and-flip guide.
Why conservative ARV is the whole game
Every downstream number inherits the ARV. Inflate it by 7% and 3 things break at once: the purchase price you justified, the loan amount you budgeted, and the profit you projected. The failure mode is always the same — the appraisal or the market tells you the truth after you are committed.
The habits that keep ARV honest:
- Renovated comps only. An as-is sale is not your comp, even next door.
- Recency over convenience. A 90-day-old sale beats a perfect comp from last year in a moving market.
- Finish-level matching. Photograph your intended finishes against the comps'. If yours are lesser, adjust down before anyone asks.
- A plan for a low appraisal. If the value lands 5% under your number, does the deal still work with more cash in, or does it only work at your price? Know before you offer.
When the flip becomes a hold
Sometimes the market moves mid-project and the sale margin compresses. Because qualifying files carry no prepayment penalty, the pivot is available: keep the property, lease it, and refinance into long-term DSCR debt once it stabilizes. The bridge-to-DSCR refinance timeline covers that handoff. The pivot only works if the rent covers the new payment — which, once again, is a number you should know before you close the purchase.
When the comps support the ARV and the budget supports the comps, start the application with the full file — purchase contract, scope of work, contractor bids, and your comp package.
Quick answers to real questions
What does ARV mean in a fix-and-flip loan? After-repair value: the estimated market value once the planned renovation is complete. Lenders cap the loan as a percentage of ARV so the debt stays protected if the project slips.
What is the 70% rule? Pay no more than 70% of ARV minus renovation costs. A useful offer-stage filter; not a budget.
How do lenders verify my ARV? Comparable sales and an independent appraisal or valuation review. The lender's valuation sizes the loan.
How much cash do I need to close a flip? The gap between project cost and what the loan covers. With up to 90% of project cost and a 75% ARV cap on qualifying files, the lower constraint sets your cash requirement.
What if the appraisal comes in below my target ARV? The loan shrinks to the supported value. Bring more cash, renegotiate, or walk — which is why conservative ARV at the offer stage is the whole game.
The number you defend is the number you keep
Flips do not fail in the rehab. They fail at the purchase price, which was justified by an ARV nobody verified. Build the comp set like the appraiser will read it, size your cash to the binding constraint, and the loan becomes the easy part of the deal.
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