LTV, LTC, and how much leverage you can really get

Ask how much you can borrow against a commercial property and the honest answer is: it depends which yardstick the lender uses. Two ratios govern leverage in commercial real estate — loan-to-value and loan-to-cost — and they are not interchangeable. Knowing which one applies to your deal tells you, before you ever sign a thing, how much equity you'll need to bring.

Loan-to-value (LTV)

LTV measures the loan against the appraised value of the property. If a building appraises at $4 million and the lender offers 75% LTV, the maximum loan is $3 million and you supply the remaining $1 million. LTV is the standard yardstick for stabilized, income-producing assets — the property already has a value an appraiser can defend, so the lender leverages against it.

Maximum LTV depends heavily on property type. Conventional commercial mortgages generally run up to about 75%. Multifamily, with its steadier cash flow, can reach roughly 80%. Owner-occupied properties and certain SBA-backed loans can stretch as high as about 90%, because the occupying business adds a second source of repayment beyond the real estate itself.

Loan-to-cost (LTC)

LTC measures the loan against the total cost of a project — purchase price plus renovation, construction, or repositioning budget. It is the yardstick for deals where there isn't yet a stabilized value to lend against: bridge loans, value-add plays, and construction. Bridge financing typically runs 65% to 80% LTC, which means the borrower brings roughly 15% to 20% of total project cost in equity.

The distinction matters because cost and finished value are different numbers. A value-add deal might cost $5 million all-in to acquire and renovate, then be worth $7 million once stabilized. A lender financing the work sizes to cost today; a lender refinancing the finished asset later sizes to value. Same property, two very different loan amounts, because the yardstick changed.

The maximum is a ceiling, not a quote

It is tempting to read 80% as the number you'll get. Treat it as the ceiling, not the expectation. Stronger sponsors, cleaner assets, and conservative business plans get closer to the maximum; weaker cash flow, hairier plans, or softer markets pull the offer down. And leverage rarely binds alone — debt service coverage often caps the loan below the LTV maximum, because the property's income simply can't support more debt at the required cushion.

Plan your equity from the binding number

The discipline here is simple: figure out which yardstick your deal uses, then plan your equity from the more conservative of LTV and coverage. If you're buying a stabilized building, model LTV against a realistic appraisal — not the seller's asking price. If you're executing a value-add or ground-up plan, model LTC against an honest, fully loaded budget that includes the costs first-timers forget: carry, contingency, and closing. Borrowers who size their own equity off the binding constraint show up to closing funded. Those who anchor to the headline maximum show up short.