Loan-to-Value (LTV)
Also called: LTV, Loan to value ratio, LTC
Loan-to-value is the loan amount divided by the appraised value or purchase price of a property, expressed as a percentage, and it measures how much of the capital stack is debt.
LTV is the most intuitive leverage measure and the one most often quoted, but it is frequently not the constraint that actually sizes a loan. Lenders test LTV, DSCR, and debt yield together and lend to the lowest of the three results.
A related measure, loan-to-cost, divides the loan by total project cost rather than value. On a value-add or development deal where cost and value diverge, loan-to-cost is often the more meaningful figure and the one a construction lender sizes to.
How to calculate loan-to-value
LTV = Loan Amount / Appraised ValueRules of thumb
- Agency multifamily debt commonly tops out near 75% to 80% LTV, with bridge lenders going higher on cost but testing a stabilized exit.
- Lenders use the lesser of purchase price and appraised value on an acquisition, so an appraisal coming in low reduces proceeds and increases the equity check.
Calculate loan-to-value
Related terms
- Debt Service Coverage Ratio (DSCR)
The debt service coverage ratio is net operating income divided by total annual debt service, and it measures how many times a property's income covers its loan payments.
- Debt Yield
Debt yield is net operating income divided by the total loan amount, measuring the unlevered return a lender would earn if it foreclosed and took the property back on day one.
- Bridge Loan
A bridge loan is short-term, usually floating-rate financing used to acquire and reposition a property that does not yet qualify for permanent debt, with the expectation of refinancing once the asset stabilizes.