Your loan to cost (LTC) ratio should always be greater than your loan to value (LTV) ratio, assuming you are purchasing properties for less than fair market value. That’s because the investment property should be worth more than you paid for it—at least, that’s the intention. However, your LTV will be greater than your LTC if you overpay for a property.
A good LTC and LTV depends entirely on the investment and your objectives. It’s not always a good thing to have less equity in a project, and it generally makes investments riskier. Unless you don’t mind losing your loan, of course. Doing your research and testing various combinations of LTC and LTV in projections to determine which makes the most sense for your investment project is best practice.
Investors and lenders both use LTC and LTV ratios to assess project risk. In general, the bank will view your investment as more “safe” the more equity you’re willing to contribute to lower the loan’s LTC and LTV ratios. If you go to one of the big, old banks, they will only lend you money based on LTC, which means that the amazing deal you just found will not affect the interest rate or monthly payment that you will have to make.
However, hard money lenders will be much more willing to take LTV into account when putting together your loan package. Florida hard money lenders frequently issue loans while taking into account variables like LTV in addition to the strict loan requirements of traditional banks. If you’re looking for loan terms that will benefit a fix-and-flip project or other short-term investment, using a Florida hard money lender might be a good choice.
Since the property itself serves as collateral for the loan, Florida hard money lenders will look more closely at the investment property you’ve chosen. If you find a great property in a desirable location for less than market value, Florida hard money lenders will be very flexible in determining loan terms to help you close on a deal.
Monroe Funding Corp has a wealth of experience and knowledge to help you reach your investing goals. To learn more about Florida Commercial Real Estate Loans, contact us online or by phone at +1 (954) 419-3539.