In real estate investing, your success depends on how well you understand two numbers: LTV (Loan-to-Value) and ARV (After-Repair Value). Most new investors lose money because they miscalculate one or both. Experienced investors treat them as the backbone of every decision.
LTV: The Lender’s Risk Gauge
LTV shows how much a lender is willing to finance based on the property’s current value. A lender offering 70% LTV is saying they’re comfortable taking on 70% of the asset’s risk. Your deal must fit the number—never force the number to fit your deal.
ARV: The Investor’s Profit Compass
ARV predicts what the property will sell for once renovated. It drives your loan amount, your max purchase price, and your expected profit. The most common mistake is using “hopeful” comps instead of hard data. Renovated comps within a half-mile radius produce the most reliable ARV.
How Investors Combine LTV and ARV
Professionals use one simple formula:
ARV × 70% − rehab costs − closing costs = max safe purchase price.
This method protects your margin even when the market shifts. To avoid errors, stress-test ARV by lowering it 5–10%. If the deal breaks, it wasn’t safe to begin with.
Why This Matters
A 2023 CoreLogic study found that over 40% of investor losses came from inflated ARVs. Freddie Mac’s collateral review reported similar trends in valuation errors. Investors don’t lose because the deal is bad—they lose because the numbers were wrong.
Conclusion
When you understand LTV and ARV like an investor, you stop relying on gut feeling and start relying on math. That’s how you protect your capital, scale faster, and avoid the mistakes that drain profits.
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