At 70% leverage, a bad break is a hard month. At 85%, the same break can take the house. That's the whole reason we cap every loan at 70% of what the property is worth fixed up.
Not 75 because we like you. Not 80 to win your business. Seventy. I know that costs us deals — there's always a lender down the street who'll stretch to 80%, or layer on a second lien, to get you to the closing table faster. We won't. This is the one number I won't move, and I want to walk you through why, because the reason is about your downside, not ours.
First, what "70%" actually means — because it's easy to get wrong
The cap is on LTARV — loan-to-after-repair-value. That's the total loan divided by what the house is worth once it's renovated. We hold that ratio at or under 70%.
Here's the part most operators hear wrong, so read this twice: 70% of value is not the same as 70% of your money. We can and do fund up to 95-100% of your actual cost — purchase price plus the full renovation budget — as long as the total loan still lands at or under 70% of the after-repair value.
A quick example. Say a property's after-repair value is $300,000. Seventy percent of that is $210,000 — that's the ceiling on total exposure. If you're into the deal for $180,000 all-in (purchase plus rehab), we can fund the whole thing, because $180,000 sits comfortably under the $210,000 line. You finance the entire deal. The cap never touched you.
The cap only bites when your all-in cost would push the loan past 70% of value. That's the deal we won't fully fund — and that's the deal I want to talk about.
The 30%-plus gap is yours, not ours
When the loan tops out at 70% of value, there's at least a 30% gap between what you owe and what the finished house is worth. (Fund a deal well under the cap, like the $180,000 example above, and the gap is wider still.) People assume that gap exists to protect the lender. It does. But it protects you first, and a lot more.
That room is what a project needs when reality shows up. The rehab runs over by $15,000 because the joists were worse than the inspection caught. The sale that was supposed to close in 45 days takes an extra three months. The ARV everybody agreed on at the kitchen table comes in soft when the appraisal lands. None of those are exotic. They happen on good deals run by good operators. The only question is whether your loan left you room to absorb them.
At 70%, a bad break is a hard month. You eat some carry, you adjust your number, you still walk away with equity. At 85% — and that's a hypothetical, not our number — the same bad break is the house. There's no room left. The overrun, the slow sale, and the soft appraisal stack up against a balance that was already pressed against the value, and you're underwater before you've done anything wrong.
Leverage feels like generosity right up until it doesn't
I understand the pull. More leverage means less of your own cash in the deal, which means you can run more deals at once. On the day you close, an 80% loan with a second lien stacked on top feels like the lender did you a favor.
Walk it forward to the bad month, though, and look at who's actually carrying the risk. A loan recorded against the property recovers from the collateral before you ever see a dollar of your equity back. That's how a recorded lien works — the lender's claim on the value gets satisfied first, and what's left over is what reaches you. When a deal goes sideways at high leverage, the value that's left after the renovation and the slow sale and the soft appraisal can be thin. The borrower is the one standing in a house worth less than the all-in cost. Stretch you to 80% with a second piled on top and the math doesn't help you — it just puts more of your money at the front of that line.
A lender stretching to 80% to win your deal isn't being generous with you. They're being generous with your downside.
Why we'd rather lose the deal
So when a deal needs more leverage than 70% of value will give it, we lose it. Sometimes you take it to a lender who'll stretch, and I don't blame you — you've got a business to run and a closing to hit. But I'd rather lose that deal than be the lender who funded you into a position one bad break could wipe out.
That's not me being conservative for its own sake. It's the math that keeps operators in business across a full cycle instead of one hot market. The flippers and BRRRR operators who are still standing in five years are almost always the ones who kept real equity between their loan and the value of what they own. The 70% cap is how I make sure I'm building that kind of borrower, not just closing this month's deal.
We'd rather you keep the house.
Bring me a deal
If you've got a Central VA flip or BRRRR in the pipeline and you want to see exactly where it lands against the 70% line — and how much of your all-in cost we can fund underneath it — come talk to us on Discuss My Deal. Bring the numbers, and we'll run them straight.