How Does ARV Affect Your Hard Money Loan?

If you’re a real estate investor, you may have heard the term ARV (After Repair Value) before. ARV refers to the value of a property after it has been renovated or repaired. It’s an important metric to consider when determining your budget for a fix-and-flip project. However, ARV also affects your hard money loan. In this post, we’ll go over what ARV is, how it affects your hard money loan, and why it’s important to understand for your next real estate investment.

What is ARV?

ARV is the projected value of a property after renovation or repair work has been completed. In other words, after repair value. It’s the value that the property is expected to fetch on the market once it’s been fixed up. ARV is calculated by comparing the property to other similar homes in the area that have recently sold, and factoring in the upgrades, repairs, and renovations. ARV is important because it helps you determine how much you’re willing to spend on a property, and what kind of profits you can expect to make.

How Does ARV Affect Your Hard Money Loan?

When you apply for a hard money loan, the loan amount is typically based on a percentage of the property’s LTV (Loan-to-Value) ratio. Lenders typically cap their loan percentage at a certain percentage of the property’s current market value, which is often less than the after repair. Therefore, if you buy a property for $100,000 that’s worth $200,000 after repairs, a lender might only give you a loan for $70,000 based on the current market value of $140,000. However, if the lender is aware of your after repair projections, they may be more willing to lend more money, based on the assumption that you’ll be able to sell the property for a higher amount after the upgrades are completed.

Why is it important to pay attention

By paying attention to ARV, you can determine whether a real estate investment is worth your time and money. If you spend more on buying and fixing up the property than the ARV suggests you’ll get back, then you could potentially lose money on the investment. A high ARV can also increase your odds of being approved for a hard money loan for a fix-and-flip project. It’s important to have realistic ARV projections based on thorough research, so that you can make informed decisions about your investment.

Factors that affect After Repair Value

The ARV of a property depends on a variety of factors, including the location, neighborhood, age of the property, its condition, and the improvements made. The local real estate market also plays a role in determining ARV. In hot markets, where properties are in high demand and prices are rising, ARV may be higher. In slower markets, where properties are sitting on the market for a long time, after repair value may be lower. Understanding the factors that influence ARV can help you make better projections when analyzing real estate investments.

How to determine After Repair Value

The process of determining after repair involves analyzing comparable home sales in the area, estimating the cost of repairs and renovations needed, and factoring in any other improvements or unique features that the property has to offer. ARV calculations should be based on solid research, data, and the opinion of real estate professionals in the area. Inexperienced investors should consider consulting with experts before making any big investment decisions.

ARV is an important metric to consider when investing in real estate, as it affects your hard money loan and determines your potential profits. Understanding what it is, how to calculate it, and what factors affect it can help you make informed decisions about your investments, avoid risks, and increase your chances of success. Partnering with a trusted hard money lender like FlipCo Financial who is knowledgeable about after repair value can also help you secure the necessary funds for your investment plans. By paying attention to after repair value you can better navigate the real estate market and position yourself for success.

If you are looking to invest in real estate, contact the trust hard money loan company, FlipCo Financial. We are offering the best terms and deals for real estate investors and we close QUICK. Contact us on our website or give us a call today.