Real estate and construction
Loan-to-value (LTV)
A loan as a share of the value of the property securing it.
Facts checked against sources onWhat does Loan-to-value (LTV) mean?
Loan-to-value is the size of a loan divided by the value of the asset it is secured on, usually property. Lenders cap it to keep a cushion if prices fall, and many loans have a covenant (a condition) that the LTV must stay below a set level. Example: a 70 million loan on a 100 million building is an LTV of 70 percent. If the building's value falls 20 percent to 80 million, the LTV rises to 87.5 percent, which may breach a 75 percent covenant and force the owner to repay part of the loan or put in more equity. The same idea is used for home loans.
Where does it come up in case interview prep?
- How construction and real estate work: who builds, who owns, who paysLesson in Construction, real estate and infrastructure
- How property owners make money: leases, occupancy and the rent rollLesson in Real estate operators: REITs, offices, warehouses and rental homes
- Property owner economics: lease decisions, interest rates and debtLesson in Real estate operators: REITs, offices, warehouses and rental homes
- Property owners by region, trends 2024 to 2026, and how to crack the casesLesson in Real estate operators: REITs, offices, warehouses and rental homes
Related terms
- Cap rate (capitalization rate)A property's net operating income divided by its value: its yield at today's price.
- REIT (real estate investment trust)A company that owns income-producing property and pays out most of its income to investors.
- LBO (leveraged buyout)Buying a company mostly with borrowed money.
- NOI (net operating income)A property's income after operating costs, before debt payments, depreciation and income tax.
- EPC contract (engineering, procurement and construction)A contract where one contractor designs, buys and builds a project and hands it over ready to run.
- Critical pathThe longest chain of dependent tasks in a project, which sets how fast it can finish.
Learn it in context
See Loan-to-value (LTV) at work in a lesson from Construction, real estate and infrastructure, with checks as you go.
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