LTV against ARV or loan to cost. Which number is actually holding the cushion?

My crews have been inside enough of these that I'd tell you the ARV number is the one I trust least, and it isn't because appraisers are lazy. They're valuing a house that doesn't exist yet against comps that sold when the market was one quarter warmer. The rehab budget is at least a document I can argue with line by line, and when a budget says $60k on a 1,600 square foot cosmetic job with a 1978 panel, I know within an hour whether that's real.

What I'd actually want, and what nobody asks me for, is the budget checked by someone who prices work for a living before the loan amount gets set off it. Cost basis with a fantasy budget is exactly as loose as ARV basis.

Worth asking what happens when the flip doesn't sell. Half the borrowers I manage for end up renting the house for a year when the retail buyer never shows. If your loan was sized to 70 percent of a retail ARV, the rent almost never covers the payment at these rates, and the refi appraisal comes in as a rental comp, not a flip comp. Cost basis loans survive that pivot better in my experience, purely because the number is smaller.

meridian, does the ARV lender fund the whole $252k at close or does the rehab piece sit in a draw account? Because if the rehab money is held back, the day one exposure on both loans is close to identical and the difference is really about how much of the finished value he's willing to reach for at the end. That changes which side I'd vote for.

Both methods are proxies for the same thing, which is how much value has to disappear before the loan is unsecured. They fail in different weather.

ARV basis assumes the finished value estimate is accurate and reachable in the projected timeline. When comps roll over, every ARV loan on your book re-rates at once, and your 70 percent turns into 80 something without anybody defaulting. Cost basis assumes the rehab budget is complete and the purchase price was arm's length. It fails on a wholesale flip where the borrower paid a friendly seller under market, since sizing to cost hands the borrower a smaller loan than the asset can carry, and it fails on any budget missing a roof or a sewer line.

Sable's question about draws is the one that matters most for exposure. If the rehab portion is held and released against completed work, day one advance against as-is value is what you're actually risking, and the ARV figure only governs the last dollars out, which are the dollars covered by finished improvements. A lender who funds construction in one advance is running ARV risk from the first day.

One practical test: compute both numbers on every deal and write the smaller one. On the $210k purchase you described, that's roughly $230k, and the deals where the two methods diverge sharply are worth a second look rather than a formula.

Also confirm in writing which value the appraisal is reporting and as of what date, since as-is, as-repaired, and prospective value are separate opinions in the same report, and recovery timelines if the loan goes bad differ by state.

Slow question. The deed of trust I've been reading gets recorded for the full face amount of the note, so does the county record show $252k even if only $195k has actually gone out the door? I've been assuming the recorded number and the exposure number were the same thing and I'm now not sure they ever are.

From the borrower chair, cost basis lenders cost me deals. When I buy something at 55 cents on the finished dollar, a cost lender hands me a loan that ignores the equity I created at the closing table and asks me to bring cash I'd rather put into the next contract. The ARV lenders get my repeat business. Make of that what you want, because the fact that I prefer it is not an argument that it's safe for you.

quarry just made the case against ARV basis better than anyone here. If ARV sizing wins the loans that cost sizing rejects, you're getting adverse selection on purpose.

I hold both constraints and take the lower. On the last four I looked at, the binding constraint was cost three times and ARV once, and the ARV one was a borrower who'd bought from a family estate at a number that had nothing to do with the market. That was the deal where I wanted the extra room, and it's also the deal where I made the appraiser explain his adjustment grid to me on the phone.

Voting for the smaller of the two. What convinced me is trellis's point rather than the appraisal argument, since the rent scenario is the one I hadn't priced at all, and my whole reason for looking at notes instead of houses was that I don't want to end up operating a rental by accident.