Wednesday, September 17, 2014

Loan-to-value Ratio



The loan to value ratio (LTV) of a property is a quotient determines amount could be financed. It clearly reveals the amount of equity you have in your property.

For example, assume you buy a home worth $100,000. If your investor agrees for $85,000 for mortgage, the loan to value ratio is 80% (because your loan of $80,000 is 80% of the home's total value). If we calculate by dividing the loan value into the property value, the LTV ratio is 85,000/100,000 = 0.85.
Higher loan to value ratios mean the lender risks higher. The lender can foreclose on your home or sell it if you fail to pay back a home loan. Their job will be more difficult because your loan to value ratio is high. If they have to sell for a higher price their job is more difficult. On the other hand, if you've borrowed only a less percentage of a property's value, say may be 40%, the investor could sale it for a less to recover his mortgage money. So, less the LTV ratio, chances are good that your lender will get their money back will be more interested to invest; High the LTV ratio the risk is higher for the investor.

In addition to the loan-to-value ratio, lenders also consider several other factors while deciding approval for a loan. Your credit history is the most important factor - the details about your borrowing money and loan repayment. You must have to have a good credit score above your LTV ratio. It is even possible to borrow more than 100% of a property's value if the borrower thinks your credit is good.

The debt-to-income ratio is another important factor that determines the quotient of your earnings relative to spending on loan payments of each month. But in fact we all want to keep this number as low as possible to enjoy comfort in your monthly budget.
Different kind of lender requirements determine possibility of a loan whether to be granted with a certain LTV. If the property is occupied by the owner lenders allow higher LTV ratio and it might even get loans at around 80%. 

On an average, lenders expect real estate properties with higher LTV for investment. Lenders want borrower to invest the maximum possible amount into a real estate property, as this will lead borrowers to work hard even more to save the property from foreclosure and their corresponding equity loss. 

Conventionally, owners put their best effort to keep their mortgages current and foreclosure away without losing their homes. They do not want to lose roofs over their head so the investor. The purchase of a property with a certain required return on investment leads the investor to do so. Hence, for the primary residences, the home buyers enjoy LTV's from 80% to even 100% with the right credit rating. But, if the rental income drops, an investor would be more likely to let the property go. In case, if they are suppose to take the property back, the lower LTV ratio will make the sell smooth and get their investment back in a easier way.

The vacation home buyers may not consider themselves as investor nor the lenders, as a home owner in their primary residence, also considers them the same; they have to put up more of a down payment to result in a lower LTV.

All the lenders want to do is to make loans or make money in their business.
The loan-to-value ratio is required for granting a loan based on the lender's experience with similar kind of property and buyer. They want the buyer to stick with the mortgage and stay out of foreclosure. But, if somehow, the foreclosure would become necessary, lower LTV makes better chance of recouping the lender's investment.

Monday, September 15, 2014

Multi-family real estate investing


Investing in real estate for multifamily units or apartments create excellent profits for investors. This investment sector, especially in multifamily units provides excellent cash flow outputs enriched with the normal tax payout structure and other real estate investment advantages. If you’re considering investing in real estate then investing in multi-family home will be wiser.
Conventionally, investors in real estate sector prefer to purchase multi-family properties for years which present its own unique set of features.
The primary advantage to multi-family investing is low rent. The sector provides a wider range of possible tenants as the rent in a multi-family unit is comparatively lower than that in a single family unit. This potential makes more people to afford to live in the multi-family building avoiding a costly living single family home.
The other advantage is spontaneous cash flow situation. The nature of properties usually makes the flow to happen. The investor gets multiple options with maximum number of units at a lower price, more for optional list of vacancy. The investor could enjoy rents from available tenants and matters a little if one or two remains vacant.
Multi-family properties also offer a higher level of convenience. The investor can meet numbers of tenants at a single place in a single appointment.
Though this investment has comparatively lower possibilities in selling market, very limited number of investors to buy such a high price property and more costs apprehended towards maintenance for its multiple uses it is more choosy to the investors with it’s high potentiality in rental market.


Multi-family housing construction is doing surprisingly well recently, especially in south. Over the long run, housing units in buildings with five or more housing units comprise about 25 percent and even increased to 35 percent in 2014. 
Possibilities are lying with life-style and demographics. Young adults are showing preference to live in apartments than the previous generation. Accordingly, the number of young adults within the age group of 20-35 is rising and the demand for multi-family units is also increasing.
Remember, yet with the slow recovery in house prices, multi-family housing segment is the only segment accelerating with a robust growth. The robust multifamily rental market is leading the multifamily construction in a high number.
So, in a one-liner, it could be said that depending on various suitable conditions, multi-family unit investment is going to be the best assorted solution in US real estate sector.