How to size a fix-and-flip loan in front of a client: ARV, LTC, and the rehab holdback
A fix-and-flip loan is sized off two things at once: what the home costs today and what it will be worth fixed up. Here is how the loan splits into an acquisition piece and a rehab holdback, and how to show an investor what they bring to the table.
Short answer: a fix-and-flip loan is sized in two pieces. The lender advances a share of the purchase price up front, then holds back the rehab money and releases it in draws as the work gets done. Both pieces are capped by what the home will be worth after repairs. Once you know the purchase price, the rehab budget, and the after-repair value, you can show the investor exactly what they need to bring. Here is how the numbers fit together.
What are the three numbers that drive everything?
Three figures decide the whole loan.
The as-is value or purchase price is what the home costs today, in its current condition. The rehab budget is what the investor will spend to fix it up. The after-repair value, or ARV, is what the home will sell for once the work is done. ARV is the number the lender cares about most, because that is what backs the loan.
Get those three on the table and the loan sizes itself.
How does the loan split into two pieces?
The lender does not hand over one lump sum. They advance part of the purchase, then release the rehab money in stages as the work is inspected. Here is a deal: buy at $250,000, put in $60,000 of rehab, with an ARV of $400,000.
| Piece | How it is sized | Amount |
|---|---|---|
| Acquisition advance | Up to about 85% of the $250,000 purchase | $212,500 |
| Rehab holdback | Up to 100% of the $60,000 budget, released in draws | $60,000 |
| Total loan | Acquisition plus rehab | $272,500 |
| Investor brings | Purchase and rehab minus the loan | $37,500 plus closing costs |
So on a $310,000 all-in deal, the investor is in for about $37,500 plus costs, not the whole project. The rehab money is there, but it comes out as the work happens, not on day one.
Where does the after-repair value cap things?
The lender will not let the total loan run past a set share of the ARV, often around seventy percent. That is the safety check. Run it: seventy percent of the $400,000 ARV is $280,000. The total loan above is $272,500, which sits under the cap, so the deal works.
If the rehab budget were bigger, or the ARV lower, the total loan could bump into that ARV ceiling. Then the lender trims the advance and the investor brings more cash. Showing the investor that ceiling up front is how you keep a deal from falling apart at underwriting.
The conversation that earns the flip business
The investor wants to know one thing before they make an offer: how much cash do I need, and does the deal still profit after the loan costs? An advisor who can lay out the acquisition advance, the rehab holdback, the ARV cap, and the cash-in-the-deal in a few minutes is worth their weight to a flipper.
That is what investor and niche lending is about: talk in the investor’s numbers, not in rate sheets. Many flippers also keep the property instead of selling, which turns into the BRRRR cycle, and you want to be the advisor who can model both exits. In WealthLens the fix-and-flip scenario sizes the acquisition advance, the rehab holdback, and the ARV cap together, so the cash the investor brings is on the screen before they write the offer.
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