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 Hard Money Loans Are and How They Work
A hard money loan is mortgage financing for businesses that are unable to secure other types of traditional financing due to poor credit or properties in disrepair. Due to high interest rates and high fees, this is usually considered last-resort mortgage financing. Hard money loans are short-term financing, with a maximum term of fewer than…
Private Money Lenders & How To Find Them Fast
Private money lenders are used by short- and long-term real estate investors to finance properties. Short-term buyers use private money loans when they want to compete with the timeline of an all-cash buyer and intend to flip the property after making repairs. Private money lenders are also used by long-term investors who want to rehab…
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…