What Is a Good Loan-to-Value (LTV) Ratio?

Question

When
 doing refinance what LTV Ratio do you guys think is good? I've heard 
70% is the norm but my realtor suggested 60% LTV to be more risk averse.

I'm
 thinking with 70% LTV it will give me more money to buy more real 
estate which ultimately provides similar safety as my portfolio grows 
and accomplishes the same thing as a 60% LTV ?

This is for Residential Multi-Family Investment Properties. All my properties are in B-grade areas with pretty good tenant pool.

Mark Nicholson · Answer

Hi, who’s doing 80% right now??  All I’m getting from lenders I’m hearing from want 65%LTV.

Mark H. Porter · Answer

80% on commercial is the best I’ve seeN in awhile

Tonya Copeland · Answer

It depends on various things. In my case, cash return is the most important thing. If I put more money down, the cash return will get lower, but in the long run, the cash flow will be better. However, putting less money down mean the cash flow (net rental yield) will be lower due to higher mortgage interest. So, there has to be some good balance. In my case, as long as net rental yield is above 4%, I'd put as little money down as possible.

Mack Benson · Answer

Leverage is one of the most powerful tools available to a real estate investor. If the deal cash flows at a 70% LTV and you only leverage it to 60% LTV you are leaving dead equity in the deal. On the other hand if you need to have an LTV of 60% for the deal to cash flow is it really a deal in the first place? For multi-family I am shooting to have only 20-30% equity and without I/O have the DCSR be at least 1.3. This will cover the debt service and expenses with having enough cash flow to make the deal worth while. If I need to decrease the LTV to 60% in order to get my DCSR goals where they need to be then I have too much equity in the deal and my cash-on-cash doesn't align with my goals.

I think you need to ask yourself if you are trying to make a play for appreciation or cash flow? Dead equity that you could use on another deal doesn't pay you in cash flow but it may help you in the future with appreciation.