The loan-to-cost ratio (LTC ratio), is calculated by taking the loan amount of a commercial mortgage and dividing it by the property’s total project costs. Project costs can include things like the purchase price, renovation costs, construction costs, and other related expenses incurred as a part of completing the improvements or repairs. The LTC ratio…
Business Financing
Loan-to-Value (LTV) Ratio: What It Is & How To Calculate It
The loan-to-value (LTV) ratio is the amount of your loan relative to the value of the collateral it’s secured by. The LTV ratio is commonly used by lenders in determining whether to approve a loan and the specific rates and terms that will be offered. Examples of loans that commonly use an LTV ratio include…
What Is a Section 1031 Exchange, and How Does It Work?
A 1031 exchange allows an investor or business owner to sell a commercial property, acquire another, and defer capital gains taxes in the process. The name refers to section 1031 of the United States tax code. When a property is sold for cash, the net proceeds incur a capital gains tax. However, if the investor…
Blanket Mortgage: How It Works & When To Get One
A blanket mortgage allows a borrower to purchase or hold multiple properties under the same financing agreement. Properties held in a blanket loan can be sold without invoking the due-on-sale clause in the mortgage, which requires the loan to be paid in full when a property is sold. This allows you to use the proceeds…
Cap Rate vs. ROI vs. Cash-on-Cash Returns: A Real Estate Investors Guide
Real estate investors frequently use three metrics to measure the performance of an income-producing property: capitalization (cap) rate, return on investment (ROI) and cash-on-cash returns. It’s recommended to use all three to get the best understanding of a property’s potential rate of return. The ROI formula is annual return divided by total investment. When to…
Free Net Operating Income (NOI) Calculator
How to Read Your NOI Calculator Results The rules of thumb for net operating income are typically: NOI should be positive on an income-producing property. NOI is typically calculated on a yearly basis. NOI does not include your monthly mortgage payments. NOI is typically used to figure out cap rate, ROI, and cash flow to…
Net Operating Income for Real Estate Investors: How to Calculate NOI Formula
Net operating income (NOI) is a calculation of the income generated by a real estate investment. It measures the amount of cash flow generated by an investment property after operating expenses but before principal and interest payments, capital expenditures, depreciation, and amortization. Investors use NOI to determine the value and profitability of an income-producing property….