Loan-to-Value (LTV)
The ratio of a loan's balance to the property's appraised value, expressed as a percentage.
Definition
Loan-to-Value (LTV) is the ratio of the loan amount to the property's appraised or purchase value. LTV = Loan Amount ÷ Property Value × 100. A $160,000 loan on a $200,000 property has an 80% LTV.
LTV is a primary risk metric for lenders. Higher LTV = more risk for the lender (less equity cushion if the borrower defaults). Conventional conforming loans allow up to 80% LTV for investment properties (meaning you need a 20% down payment); some portfolio lenders go to 85%. Hard money lenders typically go to 65–75% LTV.
For investors, LTV determines how much equity you need to bring and how much you can borrow. In BRRRR investing, the goal is to refinance at 75% LTV after renovation — pulling out most or all of your initial investment. The higher the spread between your purchase price and ARV, the more equity you pull out.
Related Terms
Leverage
Using borrowed capital (debt) to increase the potential return on an investment.
Refinance
Replacing an existing loan with a new loan — often to access equity, lower the rate, or change loan terms.
BRRRR Method
Buy, Rehab, Rent, Refinance, Repeat — a strategy to recycle capital into multiple rental properties.
Hard Money Loan
Short-term, asset-based loans from private lenders — used for acquisitions and rehabs when speed matters.
Equity
The difference between a property's market value and the outstanding balance of all loans against it.
Appraisal
A licensed professional's independent estimate of a property's market value.