Educational information, not personalized financial, tax, or legal advice. Numerical scenarios and market figures are illustrations unless a dated source is identified; they are not verified results or current quotes. Rates, costs, eligibility, and timelines must be confirmed for your property.
Theory is important, but execution is what matters. To truly understand how After Repair Value (ARV) and hard money financing interact to create profit, let's walk through a hypothetical—but highly realistic—fix-and-flip case study in Orange County, California.
The Deal and The Numbers
An investor finds a distressed 3-bedroom home in Anaheim. The negotiated purchase price is $600,000. Based on comparable sales of fully renovated homes, the ARV is determined to be $850,000. The estimated rehab cost is $75,000.
The hard money lender offers 80% of the purchase price and 100% of the rehab costs. The investor brings a $120,000 down payment plus closing costs.
Calculating the Net Profit
The project takes 4 months. The investor pays $16,000 in interest and holding costs over that time. After completing the rehab, they sell the home for the $850,000 ARV.
Deducting the purchase price, rehab, hard money costs, and the 6% agent commissions on the sale ($51,000), the investor walks away with a gross profit of approximately $108,000 on a 4-month project.
Running detailed, conservative numbers before acquiring a property is the hallmark of a professional investor. Let the ARV dictate the deal.
Whether credit is primarily business-purpose is a case-specific determination. Owner occupancy and use of funds matter; an investment-related label alone does not establish an exemption. CFPB: Regulation Z business-purpose credit rules
Going over budget on the rehab or the market softening during the project, resulting in a sale price below the initial ARV estimate.
Fidelity Funding Corp · Direct California private money lender since 2006
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