what’s a good LTV % for portfolio

[Carlos Silva]

What's a good LTV% for a LTR portfolio? Is this a good number to look at to ensure that you are not over leveraged?

[Stuart Udis]

Such a good question, but there is no universal answer. The "safe" leverage is dependent on asset class, asset value, condition and liquidity/reserves. Furthermore, being honest about your portfolio's value is just as important and where most go wrong. A few points worth noting:

Asset Class/Use: Single tenant commercial warrants lower leverage than single occupancy residential because it's easier to keep that single family home occupied and the value is dependent on many buildings sharing similar characteristics whereas commercial property values are dependent on more factors including income and tenancy. Lose that tenant and it's not only more difficult to re-lease but also the lease terms may vary more significantly than a single-family home re-lease.

Asset Value: A 80% LTV $100K SFH in "C/D" zero barrier neighborhood is different than a 80% LTV $1M SFH in an "A" market that has strong fundamentals. Besides the stability, you have to look at cap ex and op ex, cap ex specifically. Two major cap ex events in a short period of time can put the 80% LTV $100K underwater whereas the 80% LTV $1M SFH can more easily absorb those same cap ex events because the major cap ex systems and building components do not cost 10X to replace.

Liquidity/Reserves: Reserves are important. If you don't have reserves or are "living" off the income, keep lower LTV's across your portfolio because when issues arise and cash is needed you have to be able to tap into that equity.

Be realistic in your LTV Analysis:

- Just because the duplex down the street sold for $300K doesn't mean your duplex should be valued the same if that building has all new systems and yours needs $80K of cap ex to be an apple-to-apple comparison.

-Take into consideration where in the life cycle your property is. Simple math example: Purchase the property for $100K, Spend $100K and Property is worth $300K. You are currently 50% through the renovation and have $50K available for draw to complete the renovation. This is not a 60% LTV property ($150K cost against $250K property) because the work is not completed and there are still risks that have to be priced into the project.

-The most common miscalculation I see is when someone buys a cheap "BRRRR" property, throws a quick surface-level rehab on it, and then celebrates because they got a great appraisal. The problem is that appraisal rarely holds up against an arm's-length sale. A home inspector will dig into things the $100K single-family appraiser never touched—plumbing that's at the end of its life, electrical shortcuts, foundation cracks, moisture issues, sloppy workmanship, and every bit of deferred maintenance hiding behind the cosmetic upgrades. Once that inspection report hits the buyer, the renegotiation starts. Credits, concessions, seller assist… and suddenly the valuation looks nothing like the appraisal you were expecting.