If you’re considering becoming a private lender, one of the most important concepts you need to understand is Loan-to-Value (LTV). This simple ratio plays a major role in determining the safety of your investment.

Loan-to-Value is the percentage of a property’s value that is being borrowed. It’s calculated by dividing the loan amount by the property’s current market value.

For example:
If a property is worth $200,000 and you lend $140,000, your LTV is 70%.

140,000÷200,000=70%140,000 ÷ 200,000 = 70\%140,000÷200,000=70%

The lower the LTV, the more equity cushion you have protecting your investment.

In private lending, your loan is typically secured by real estate. If the borrower defaults, the property becomes your primary protection. A conservative LTV ensures that even if the property needs to be sold quickly, there’s likely enough value to recover your principal—and potentially your interest.

Many experienced private lenders aim for an LTV of 60% to 70% or lower. This provides a buffer against market fluctuations, unexpected repairs, or selling costs.

Higher LTV loans may offer slightly higher interest rates, but they also come with increased risk. Lower LTV loans might generate slightly less yield, but they offer greater security. As a lender, your goal isn’t just high returns—it’s protected returns.

Understanding LTV is fundamental to smart private lending. It’s one of the simplest tools you can use to evaluate risk and protect your capital.

When structured properly, private lending can provide strong, predictable income—especially when backed by a healthy equity cushion.

Would you like to know more about private lending using your IRA?   Contact Alex at [email protected] or call 501-580-2598

I’ve officially completed my 60-hour online course for my real estate license! 🎉

Now I’m in the process of scheduling my exam with the Arkansas Real Estate Commission so I can take the next step toward getting licensed.

I’m excited about this new stage in my real estate career and the opportunity it will give me to serve even more people with their real estate needs.

Would you like to know more about how to grow your retirement nest egg? Contact Alex at [email protected] or call 501-580-2598