Investors who consider investing in a Private Mortgage Fund, understand that Loan-to-Value (LTV) plays a major role about the fund’s risk/return profile. 




The LTV is a fundamental part of the Real Estate Lending industry. LTV ratio is a measure of the loan amount as a percentage of the collateral property’s value. Fund Managers manage risk by keeping LTV ratios in the portfolio at low-to-moderate levels. A small loan-to-value ratio provides a greater cushion to protect the Fund and its Investors if a loan default and a property must be sold.




Investors evaluating Private Lending Funds look at the average LTV across the whole portfolio rather than at individual loans. Most Private Lending Funds consider LTV below 75%, and some others are more conservative and sets its average LTV below 70%, providing a greater cushion for its investors.




Although LTV is a powerful tool, the property must be properly evaluated otherwise this might create a weak assumption of the value. An experienced Fund Manager always requires a certified appraisal which provides accurate data that will help him to not overstate the value of the property and understate the LTV.




Another way Private Lending Funds manage risks, is by having a different LTV in their portfolios depending on property-type, asset class, and by having a diverse LTV values for single family residential, multi-family, commercial, construction and land development loans.




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