Definition
Loan-to-Value (LTV) is the ratio of the acquisition loan to the purchase price. A 60% LTV means the buyer borrows 60% of the purchase price and contributes 40% as equity. LTV directly affects annual debt service and therefore DSCR. Lower LTV reduces the loan burden but requires more equity capital from the buyer.
Formula
Loan Amount = Purchase Price × LTV
Worked Example
A $500,000 acquisition at 60% LTV requires a $300,000 loan. At 8.5% interest over 7 years, the annual debt service is approximately $59,000, resulting in a DSCR of 2.03x on $120,000 earnings.
Related Terms
Ready to put this into practice?
Use the free BAS calculator to score any acquisition.