📅 Sunday, June 14, 2026 · By Barry Luchtel · 7 min read

How Loan-to-Cost (LTC) Works in Hard Money Lending

If you've talked to a hard money lender about a fix-and-flip, you've heard two numbers thrown around: loan-to-value and loan-to-cost. Most new investors fixate on the value side and never really dig into loan-to-cost — and that's a mistake, because LTC is usually the number that determines how much cash you're pulling out of your own pocket to get a deal done.

I've been lending on Phoenix real estate for years at Kayak Capital, and I can tell you the borrowers who understand LTC walk into a deal knowing their exact cash position before they ever sign a contract. The ones who don't are the ones calling me a week before close in a panic because they're short. So let's break down what loan-to-cost actually means, how it's calculated, and how to use it to plan a deal that doesn't blow up your bank account.

What Loan-to-Cost Actually Means

Loan-to-cost is the percentage of your total project cost that the lender is willing to finance. Total project cost is the whole thing — your purchase price plus your rehab budget. Not the after-repair value, not what you think it'll sell for. The actual money it takes to buy the property and fix it up.

So if a lender offers you 85% LTC, that means we'll fund 85 cents of every dollar it costs to get that project done, and you cover the other 15%. That 15% is your skin in the game. Lenders want to see it because a borrower with their own money in a deal behaves very differently than one with nothing to lose.

How to Calculate Loan-to-Cost

The math is simple once you see the pieces. Take your total cost, multiply by the LTC percentage, and that's your loan amount. Whatever's left is your cash to close. Here's a real-world example on a typical Phoenix flip:

That $54,000 is your down payment in the eyes of a hard money lender. Add your closing costs, title, insurance, and a few months of interest reserves on top of that, and you've got the real number you need in the bank before you take this deal down. This is exactly the kind of math you want to run before you're under contract, not after.

Where LTV Comes In: Our Cross-Check on the Deal

This trips people up constantly, so here's the clean version. Loan-to-cost is about what you're spending, and it's the number we actually lend on — it sets your loan amount and your cash to close. Loan-to-value is about what the property is worth, specifically the after-repair value (ARV) once the work is done. We don't run LTV to shrink your loan. We run it as a cross-check at the end to make sure the deal actually makes sense and there's a real win-win — enough equity that you can make a profit and we're protected.

Back to our example. At 85% LTC, your loan comes in at $306,000 with $54,000 of your own cash in the deal. Now say that finished property will appraise around $510,000 fixed up. We take the loan against that ARV as our cross-check: $306,000 ÷ $510,000 comes out to 60% LTV. That tells me the loan sits at 60 cents on the dollar of the finished value — there's roughly $200,000 of equity above our debt. That's a deal that makes sense. You've got room to profit, and we're well protected. Win-win.

Now flip it. If that same loan came back at 75% or 80% of ARV on the cross-check, that's my signal the deal is too thin — you probably paid too much, the rehab budget's light, or the ARV is optimistic. The LTC math might say yes, but the value cross-check is telling us nobody's really winning. I'd rather catch that with you before you're under contract than after.

Why a Higher LTC Isn't Always the Win It Looks Like

Everybody chases the highest LTC they can find, and I get it — less cash out of pocket means you can do more deals. But I'd rather you understand the tradeoff than just hunt for the biggest number. A few things to keep in mind:

More leverage means more risk. The less of your own money is in the deal, the thinner your cushion if the rehab runs long or the market shifts. Leverage cuts both ways.

Watch what the high LTC costs you. Some lenders dangle a high LTC and then bury you in origination points, processing fees, and prepayment penalties to make up for it. The headline number looks great until you add up the junk fees.

Rehab is usually funded in draws. Your purchase money comes at close, but the rehab portion is typically reimbursed as you complete the work and we inspect it. So you're often floating some construction cost before you get drawn back — plan for that.

At Kayak Capital we keep this simple: zero origination points, zero processing fees, zero prepayment penalties, zero extension fees. The only thing you pay is interest for the time you actually hold the loan. That way the LTC we quote you is the real deal, not a number with a bunch of strings attached.

How to Use LTC to Plan Your Next Deal

Here's how I'd want you to walk into your next purchase. Before you make an offer, build your total cost — honest purchase price plus an honest rehab number with a contingency built in. Apply the LTC your lender offers to get your loan amount and your true cash to close. Then do the LTV cross-check yourself: divide that loan by your honest ARV and see where it lands. If it's down around 60-65%, you've got a deal with real equity in it. If it's creeping toward 75% or higher, pump the brakes — there may not be enough room for you to profit. Last question: after this deal eats your cash to close, do you still have reserves to cover a surprise? If the answer is no, the deal is too tight, no matter how good the spread looks on paper.

The investors who do this consistently are the ones who survive the deals that don't go to plan — and in this business, some of them won't. LTC isn't just a lending term. It's a planning tool that tells you exactly how exposed you are before you commit.

Let's Run Your Numbers

If you've got a Phoenix deal you're looking at and you want to know exactly what we'd fund and what you'd need to bring to the table, let's talk it through. We're asset-based lenders — we care about the deal more than your credit score — and we'll give you straight answers fast so you can lock it down.

Call Barry at (480) 256-2274 or apply online at KayakCapital.com. We'll give you an answer fast so you can lock down your deal.