When I started my hard money lending business, I funded loans at 100% of purchase price. The after-repair value was the number I watched. As long as we stayed at 75% of ARV, I figured we were covered.
What I didn't think through was what our position looked like on day one — before a single nail was hammered.
The borrower's plan was to renovate immediately and increase the property's value. But what if they couldn't? What if they got injured the day after closing? What if the market softened 10% while the renovation stalled? My loan was sitting at 100% of purchase price, on a property that hadn't been improved, in a market that doesn't move in straight lines. That loan was underwater before the first draw was ever requested.
That's the gap between ARV thinking and as-is thinking — and it's where a lot of lenders get hurt.
Hard money lenders argue about these numbers constantly. There's no universal answer, but there are frameworks that hold up over time. Here's how we think about each one.
This is the metric most lenders underweight. The as-is value is what the property is worth the moment the loan funds — before any work begins. Lending at 100% of purchase price doesn't guarantee you're at 100% of as-is value, but in competitive markets where buyers routinely pay at or above market, it's close enough to matter.
We target 85% loan to as-is value. That buffer gives us room to absorb legal costs during a foreclosure, carry unpaid interest while the process works through the courts, make minor repairs to get the property resellable, and cover closing costs on the way out — and still break even on the loan. It's not a comfortable cushion; it's a floor that keeps a bad loan from becoming a catastrophic one.
The 75% LTV threshold is widely accepted in the hard money space, and we agree with it. It reflects realistic resale risk, accounts for carrying costs if the disposition takes longer than expected, and still leaves meaningful upside for the borrower on a well-executed project. Staying at 75% of ARV is one of the areas where conventional wisdom and good lending practice actually align.
This is where borrowers push the hardest, and where lenders need to hold the line most carefully.
Borrowers want 100% loan to cost. If the lender funds every dollar of acquisition and renovation, the borrower puts none of their own capital at risk. The pitch is that it frees up the borrower to do more deals. The problem is that it also frees them from any real consequence if a deal falls apart.
A borrower with no equity in a deal has no financial reason to protect it when things go sideways. A renovation that runs over budget, a contractor who walks off the job, a market shift that tightens margins — none of these create the same urgency for a borrower who isn't losing their own money. The lender absorbs the downside while the borrower moves on to the next opportunity.
There's also a basic alignment problem. If the lender funds 100% of the cost, the lender carries 100% of the risk. That level of exposure typically warrants participation in the upside — an equity stake, profit share, or something else that compensates for the risk profile. A straight debt structure at 100% LTC doesn't accomplish that.
We stay at 85% loan to cost as a standard threshold. We'll consider going higher for strong borrowers with a track record, but anything above 90% is a serious flag regardless of the relationship. The borrower needs to have real money in the deal.
Choosing your thresholds is the first step. Monitoring them consistently — across individual loans and your entire portfolio — is what makes them meaningful.
A portfolio can drift without anyone noticing. A loan that looks fine at origination can shift when an ARV needs to be revised, when a renovation stalls, or when comparable sales in the market start softening. Tracking your weighted average LTV, LTC, and loan-to-as-is-value across the whole book gives you early visibility into concentration risk before it becomes a liquidity problem.
This is one of the core reasons we built Glass around real-time portfolio metrics. The software tracks LTV, LTC, and as-is value ratios at the loan level and aggregates them automatically across the portfolio. Lenders who rely on spreadsheets to do this manually tend to check the numbers quarterly at best — Glass surfaces them continuously through our loan management software.
These thresholds aren't arbitrary rules. They're the product of thinking through the failure scenarios — not the optimistic ones. The question to ask on every loan isn't "what happens if the borrower executes perfectly?" It's "what happens if they don't, and how do we get our money back?"
At 85% of as-is value, 75% of ARV, and 85% of cost, you have a structure that protects your capital, gives the borrower a genuine stake in the outcome, and leaves you room to work through problems when they inevitably arise.
Every lender will land on slightly different numbers. The ones who tend to regret it are the ones who never thought the question through at all.