[August 2023]
1 minute speech
Title : LTC VS. LTV
Link : https://youtube.com/shorts/NIuDwVs2j28?feature=share
1. Key words
real estate investments, loan to value, loan to cost, existing properties, property's current value, income, bank lending criteria, new builds, construction expenses
2. Summary
When considering real estate investments, it's vital to understand terms like "loan to value" and "loan to cost." In existing properties, "loan to value" indicates the loan percentage based on the property's current value, considering income and bank lending criteria. On the other hand, "loan to cost" pertains to new builds, where the loan is based on construction expenses.
3. Script
People went out, you're shopping real estate, you're looking for a pre-existing asset. What it's already valued at based on its rents, it's income source, and what banks are looking for for Lending. They're looking at a loan to value, so when you go in and they say we're loaning 80, 70, or 60 percent loan to value, that means that they're going to give you 70 percent of that loan based on the existing value of that property. So this is existing. Now, loan to cost is the cost that it's going to take to actually build a new asset. So the bank says we're going to give you 60, 70, or 80 percent loan to cost. There is no value there yet because it doesn't produce income, it doesn't exist. So what the bank is basing it on is the cost to build. So this is for a new build asset and so what is it going to cost to actually build that asset. That's the difference between loan to cost and loan to value, existing versus new build.