After repair value is a common term among real estate investors and it refers to the future value of the property after construction or rehab is complete. This value is usually determined through a future value appraisal or comparable sales. This number is especially important in construction loans
and rehab loans, as it will usually determine the maximum loan amount for the transaction.
Using the ARV offers many benefits to borrowers, such as greater leverage and less cash out-of-pocket to complete projects. For example, assume a property with a purchase price of $200,000 and an ARV of $300,000 that requires $20,000 in rehab. Hard money lenders usually lend up to 65% of the property value, which would give a maximum loan amount of $130,000 on the as-is or purchase price of the property. The borrower would then need $100,000 in cash to buy and rehab the property. Using the ARV, the borrower could receive a loan of $185,000 and need only $45,000 in cash.