Fix-and-flip loans: as-is value, ARV, rehab draws and your cash needs

Does a strong ARV guarantee maximum purchase financing?

No. After-repair value, or ARV, is the estimated value after the planned renovation is complete. As-is value reflects the property in its current condition. In the financing structures I discuss here, both matter: one limit controls the advance toward the purchase, while another controls the total loan, including the approved rehab holdback.

An advertisement might describe up to 90% purchase financing, with the total loan limited to 75% of ARV. That does not automatically mean 90% of your contract price. Under a program that uses the lower of purchase price or as-is value, a lower as-is appraisal reduces the dollar basis for the purchase advance—even when ARV supports the overall project.

These percentages illustrate a common discussion, not terms offered to every borrower. Credit, experience, property, renovation scope, loan-to-cost limits and other requirements can impose additional constraints. Ask which value basis and limits apply to your particular transaction.

Example: the ARV works, but the as-is value changes your cash requirement

Consider a hypothetical $500,000 purchase with a $75,000 approved rehab budget and a $750,000 ARV. Assume the rehab budget is fully financed as a holdback, the purchase advance is capped at 90% of the lower of price or as-is value, and the total loan is capped at 75% of ARV. Assume no other limit reduces the amounts; exclude fees, reserves and other closing adjustments.

The total-loan ceiling is $750,000 × 75% = $562,500. Compare an as-is value equal to the purchase price with a lower $475,000 appraisal. Both proposed total loans fit below that ceiling, but the lower appraisal cuts purchase funding by $22,500.

A 90% advance against $475,000 is $427,500. Relative to the $500,000 contract price, that is 85.5% financing. The percentage applied to the value basis did not change; the basis did. Your contribution toward the price rises from $50,000 to $72,500, before closing costs or cash to start work.

Can the ARV limit reduce the purchase advance too?

Yes. Both limits must work at the same time. Keeping the $500,000 price, $475,000 as-is value and $75,000 financed rehab budget, suppose ARV is instead $650,000. The assumed 75% ceiling becomes $487,500. After reserving $75,000 for rehab, only $412,500 remains for the purchase advance—less than the $427,500 allowed by the as-is calculation.

This simplified example explains why a higher rehab budget or a lower ARV can reduce purchase proceeds. A real review may apply other limits, finance some costs or require a different borrower contribution. A total loan ceiling is not an amount paid entirely to you at closing.

If my rehab budget is approved, do I receive that money at closing?

Usually, the rehab portion in this type of loan is held back and released through draws as work is completed and verified. The initial purchase advance helps fund the acquisition. The approved rehab allocation is a separate part of the loan; approval of the budget does not mean that amount arrives in your account on closing day.

Plan how you will start the work before the first reimbursement. For example, if the first stage costs $20,000, a $75,000 approved holdback does not by itself provide that $20,000 upfront. You need a workable plan for paying for that stage and covering the time between the draw request and release.

In-progress draws mean you may request reimbursement for an eligible completed portion while the overall project continues. They do not necessarily mean payment for work that has not happened. Confirm documentation, inspections, eligible costs, fees, any retained amount and release timing; a submitted request is not a guarantee that the whole requested amount will be paid.

An advance for initial rehab work may be possible under a specific program or approved exception, particularly for an experienced investor with an established relationship. Do not build your cash plan around it unless it is explicitly agreed in the loan terms.

• Complete eligible work under the approved scope and keep the required records.
• Submit a draw request and any required invoices, photographs or other support.
• Allow for inspection or verification and review before funds are released.
• Keep enough liquidity to continue safely if the draw is smaller or later than expected.

How much cash should I plan for beyond the down payment?

Separate the purchase contribution from transaction costs and working cash. Your cash plan may need to cover closing and financing costs, the first work stage, gaps between reimbursements, work that is not financed, carrying expenses and a contingency. A loan that finances the full approved renovation budget can still require substantial cash during the project.

Temporary cash used for a reimbursable stage is not automatically an extra renovation expense on top of the same budget. Track when money leaves and returns so you can distinguish liquidity from total project cost without counting the same work twice.

Discuss interest calculation as well as the stated rate. Some structures charge interest on disbursed funds, while others use the full committed amount. Actual draw timing, fees and the loan agreement affect the carrying cost. Confirm the payment and maturity schedule rather than assuming that a longer project can always be extended.

Why do light, heavy and structural rehab lead to different terms?

A scope of work is more than a budget total. It tells the financing team what you intend to do, how the finished property will differ and what experience is needed to execute the plan. A costly interior renovation and a structural expansion can present different risks even if their budgets are similar.

Light, moderate, heavy and structural are not interchangeable labels. Programs can classify projects using the work itself, cost relative to current value, added square footage, a change in use or other criteria. There is no single industry-wide cutoff being offered here.

Tell me early if you intend to build up, build out, change the footprint or undertake structural work. An added floor or room may be reviewed as heavy rehab or through a construction program, depending on the lender and the project. It is not automatically treated the same way everywhere. Classification can affect leverage, documentation and required experience.

Organize your project with the scope-of-work tool →

How does my experience affect the project I can finance?

Experience can affect the available leverage and which scope a program will consider. Someone who has completed cosmetic renovations may need a different review for an addition or structural project. An established relationship may help an exception request, but it does not guarantee one.

Describe your role and the work actually completed on prior projects. The number, recency and type of qualifying projects vary by program; owning a property is not necessarily the same as completing a comparable renovation. Your contractor’s experience and your own track record may be reviewed separately.

My background spans acquisition, funding, scope preparation and resale. The most useful conversation starts with your full vision for this property, not only the loan percentage you hope to receive. We can then discuss financing around the scope, your experience and the cash you will need.

Prepare your completed-project history →

What happens to the estimate if the project takes longer or sells for less?

Use the flip calculator to test the project after reviewing the financing assumptions. In the separate hypothetical example below, the loaded purchase price is $516,000, rehab is $40,000, expected sale price is $670,000 and the hold is five months. Purchase financing is assumed at 85%, with the rehab fully financed. These are sample inputs, not a rate quote or approved terms.

For reproducibility, this example uses the calculator’s Florida setting, 9.75% annual interest assumption, 2.75 points, non-Dutch interest with evenly spaced rehab draws, closing on day 20, $5,700 annual insurance with six months prepaid, $4,793 annual property taxes and a 3% buyer-side brokerage assumption. Seller-side brokerage, seller contribution, extra out-of-pocket rehab and partner split are zero; all other built-in cost estimates remain loaded. The interest input is not an APR including fees.

Each alternative changes only the item stated from the five-month base case. One more month reduces modeled profit by $4,126. A $30,000 lower sale price reduces it by $28,890; the model also changes the selling costs tied to sale price. Those are modeled results, not predictions of a sale or a complete accounting of every possible project expense.

Run your own assumptions in the flip calculator →

What should I bring to the financing conversation?

The calculator explores costs and outcomes; it does not determine your approved advance. It has no separate as-is appraisal input and does not underwrite project classification or experience. Its purchase-financing percentage is an assumption applied to the purchase price. Review the actual funding amount with me before relying on the model.

The model assumes the rehab budget is fully financed and, in non-Dutch mode, spreads draws evenly over the hold period. Actual reimbursements may be uneven or delayed. Replace loaded estimates with project-specific costs and separately budget contingencies and expenses the tool does not itemize, such as utilities, association charges or extension costs.

Bring the full plan before settling on terms. If the scope changes after an initial review, disclose it and confirm the financing again before relying on the old numbers. A resale target is not a guaranteed exit, and a later refinance needs its own qualification review. This guide concerns business-purpose investment property financing through KMN LLC.

• Purchase price, current condition, any available as-is valuation and the evidence behind your expected ARV.
• An itemized scope and budget, clearly identifying structural changes, additions or changes in use.
• Your comparable completed projects, your role, and the contractor’s plan and experience.
• Cash available for closing and work before reimbursements, plus reserves for delays and unexpected costs.
• Expected renovation and sale timeline, repayment plan and an alternative if the sale takes longer or brings less.