Commercial Loan-to-Value (LTV) Calculator
Determine your LTV ratio and evaluate financing leverage for commercial properties.
What is Loan-to-Value (LTV) in Commercial Real Estate?
The Loan-to-Value (LTV) ratio is a critical metric used by commercial lenders to assess the risk of a mortgage. It represents the ratio of the first mortgage lien as a percentage of the total appraised value of the real property. In the commercial sector, LTV is a primary determinant of your interest rate and the amount of equity you must contribute to the deal.
The Formula for Commercial LTV
The calculation is straightforward:
LTV = (Loan Amount / Appraised Value) x 100
Typical Commercial LTV Benchmarks
- Multifamily (Apartments): Generally allows for higher LTVs, often 75% to 80% through Fannie Mae or Freddie Mac programs.
- Office and Retail: Typically capped between 65% and 75% depending on occupancy rates and tenant quality.
- Industrial/Warehouse: Standard range is 65% to 75%.
- Hospitality/Hotels: Higher risk often leads to lower LTVs, usually between 55% and 65%.
Example Calculation
If you are purchasing a commercial office building appraised at $5,000,000 and the lender offers a loan of $3,500,000, your LTV would be:
($3,500,000 / $5,000,000) = 0.70 or 70% LTV.
In this scenario, the investor must provide $1,500,000 (30%) as a cash down payment (equity).
Why LTV Matters to Investors
A lower LTV generally results in lower interest rates and better loan terms because the lender has a larger "cushion" if the property value drops. Conversely, a high LTV increases leverage, potentially improving the Cash-on-Cash return for the investor, but it also increases the risk of default if the property's Net Operating Income (NOI) fluctuates.