LTV vs LTC vs ARV LTV: Understanding Real Estate Loan Leverage
Quick Answer
LTV = loan vs property value. LTC = loan vs total project cost. ARV LTV = loan vs future property value. ARV LTV is most common in flip loans.
Table of Contents
What Are LTV, LTC, and ARV LTV?
These three metrics measure how much leverage a lender is willing to offer, but each uses a different baseline value.
LTV (Loan-to-Value)
LTV = Loan Amount / Current Property Value
LTV compares the loan to the property's current as-is value. This is most common in traditional mortgages and rental property loans.
LTC (Loan-to-Cost)
LTC = Loan Amount / Total Project Cost
Total project cost includes both the purchase price and the rehab budget. LTC is used when lenders want to measure leverage against your total investment.
ARV LTV (After Repair Value LTV)
ARV LTV = Loan Amount / After Repair Value
ARV LTV compares the loan to the projected value of the property after renovations are complete. This is the most common metric in fix and flip lending.
Why ARV LTV Matters Most for Flips
Traditional banks use LTV because they lend on stabilized properties. Fix and flip lenders use ARV LTV because the entire investment thesis is based on the future value after renovation.
A typical flip lender caps loans at 70-75% of ARV, which often covers both the purchase price and rehab budget.
Example Comparison
Purchase price: $200,000 Rehab budget: $50,000 Current value: $210,000 ARV: $340,000 Loan amount: $225,000
| Metric | Calculation | Result |
|---|---|---|
| LTV | $225,000 / $210,000 | 107% |
| LTC | $225,000 / $250,000 | 90% |
| ARV LTV | $225,000 / $340,000 | 66% |
The same loan looks very different depending on which metric you use. ARV LTV shows a conservative 66%, which is well within most lender guidelines.
Related Reading
Key Takeaways
- ✓ARV LTV is the most common metric in flip loan sizing
- ✓LTV measures loan against current property value
- ✓LTC measures loan against total project cost including rehab
- ✓Understanding all three helps investors compare lender offers