loan to cost This is a topic that many people are looking for. thetruthaboutdow.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, thetruthaboutdow.org would like to introduce to you Real Estate Investing Explained – Loan to Value vs. Loan to Cost GowerCrowd. Following along are instructions in the video below:
“There adam gower here again thanks for joining me appreciate your coming along to check check out this episode on loan to value and loan to cost now the way it works when a sponsor goes out and buys a piece of real estate is that they will be financing. It with two key components of capital. One is going to be debt that they re going to get from the bank and the other is going to be equity that they re going to be asking you for now debt. When it is placed on the property is never these days going to be a hundred percent of what the sponsor needs.
If it were then they wouldn t need your equity right. So the way that the bank s determine how much they re going to lend to a sponsor is by using one of two ratios and those two ratios are loan to cost or loan to value and be sure to go to leaders of the crowd comm forward slash small change where you can download a list of the top ten things that you need to know when looking at real estate investment contracts all right all right so let s take a look at the small change website over here..
We re going to go to completed projects and scan down to benning over here and when we click on benning. We will have a look all the way down here to about the finances and we ll click on show more and when we zoom in over here. We see these two concepts loan to value ratio and loan to cost ratio. Okay now the loan to cost is the amount that a lender will lend to a sponsor that is a proportion of the total cost of the project and the total cost of the project is going to include the purchase of the land and any improvements that the sponsor may be putting on the project and that could include fees and soft cost soft costs being architectural fees etc.
Etc loan to value is a different ratio because now what the bank is saying is what is the ultimate value of this property. How much shall we lend against that and so that s going to be a very diff number and of course in theory..
The value is going to be higher than the cost right so you might expect that the loan to value ratio would be higher and indeed. In this project. You can see that the loan whoops. The loan to value ratio is 75 and the loan to cost ratio is 70 and a bank is going to be looking at both of those ratios to make sure.
Neither. One nor..
The other goes out of whack all right and importantly. The more debt that you have on a project. The higher the risk that the project will fail why because if the borrower fails to pay to the lender. What is agreed in the lending documents in the loan documents.
The lender will retain the right to foreclose on the borrower. So the more debt the higher the chance that the borrow will stop paying on the loan and that the lender will take the property back..
So you want to be looking for projects that have lower relative loads of value ratios and loan to cost ratios okay that s it for today thanks so much for being here don t forget go to leaders of the crowd comm o. All change for more information on this very interesting subject of real estate investing explained. I ll see you in the ” ..
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