Fix and flip loans are sized using three key metrics: LTV, LTC, and LTARV. Each one measures a different part of the deal, and lenders use all three to determine how much they can safely lend. Understanding how these ratios work helps investors estimate leverage, plan cash requirements, and structure deals that align with lender guidelines.
What LTV Measures #
LTV, or loan-to-value, compares the loan amount to the property’s current value. For fix and flip loans, this is usually based on the purchase price or as-is appraised value, whichever is lower.
LTV tells the lender how much equity exists in the deal at the start. A lower LTV means more investor equity and less lender exposure.
Example: If a property is worth $200,000 and the lender allows 80% LTV, the maximum loan based on LTV alone would be $160,000.
What LTC Measures #
LTC, or loan-to-cost, compares the loan amount to the total project cost. This includes the purchase price plus the full renovation budget.
LTC shows the lender how much capital the investor is putting into the deal. A borrower contributing more of their own funds typically represents lower risk.
Example: If total project cost is $250,000 and the lender allows 90% LTC, the maximum loan based on LTC would be $225,000.
What LTARV Measures #
LTARV, or loan-to-after-repair-value, compares the loan amount to the property’s expected value after renovations are complete. This metric is based on a projected ARV, usually supported by comparable sales and a defined scope of work.
LTARV helps the lender evaluate whether the finished property will support the total loan amount. It also serves as a check on whether the renovation plan makes financial sense.
Example: If the ARV is $350,000 and the lender allows 70% LTARV, the maximum loan based on LTARV would be $245,000.
How Lenders Use All Three Together #
Most fix and flip lenders do not rely on just one ratio. Instead, they calculate all three and use the most conservative result to determine the final loan amount.
This approach protects the lender by ensuring:
- The current value supports the acquisition loan
- The investor has meaningful capital in the deal
- The completed value justifies the full loan amount
Even if one metric suggests higher leverage, the limiting ratio will control the outcome.
Why This Matters for Deal Planning #
Understanding these three metrics helps investors avoid surprises during underwriting. A deal that looks strong based on ARV may still require more cash at closing if LTV or LTC limits come into play.
Before submitting a loan request, it helps to run all three calculations and identify which ratio is likely to control the loan amount. This allows for more accurate budgeting and clearer conversations with lenders.
Summary #
LTV, LTC, and LTARV each measure a different aspect of a fix and flip deal. LTV focuses on current value, LTC accounts for total project cost, and LTARV evaluates the finished value after repairs. Lenders use all three and typically approve the lowest resulting loan amount. Knowing how these ratios interact helps investors structure deals with realistic leverage expectations and appropriate cash reserves.