LTV: Loan-to-Value
LTV compares the loan amount to the property’s value. LTV is often used to measure downside protection if the lender must exit through sale.
LTC: Loan-to-Cost
LTC compares the loan amount to total project cost (purchase + rehab + other eligible costs). LTC is common in renovation and value-add scenarios.
Why Lenders Care
- Downside: LTV is a primary indicator of collateral cushion.
- Execution: LTC helps ensure the borrower has meaningful equity at risk.
- Marketability: the easier the asset is to sell, the more flexible lenders may be.
Common Structuring Mistakes
- Using optimistic ARV as a substitute for as-is value
- Ignoring real rehab contingencies
- Assuming one lender’s leverage limits apply to all lenders
Practical Guidance
Conservative leverage reduces friction and improves execution. If the deal requires maximum leverage to work, it likely needs a stronger structure or a different strategy.
Quiet conclusion: Leverage is not just a number; it is risk allocation.
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