f you’re investing in real estate debt, understanding how lenders evaluate risk is everything. The foundation of that risk assessment? Metrics. Specifically: Loan-to-Value (LTV), Loan-to-Cost (LTC), Combined-Loan-to-Value (CLTV), and After-Repair Value (ARV). But there’s more. Let’s walk through these and other must-know terms that shape every deal.
Loan-to-Value (LTV)
LTV measures the loan amount as a percentage of the property’s appraised value: LTV = (Loan Amount / Property Value) x 100
Example: A $650,000 loan on a $1 million property gives you a 65% LTV. That’s Yieldi’s average, by the way, and for good reason—it leaves a healthy equity buffer.
Why it matters: Lower LTV = lower risk for you. If the borrower defaults, you’ve got room to recover your capital.
Loan-to-Cost (LTC)
LTC focuses on how much of the total project cost is being financed: LTC = (Loan Amount / Total Project Cost) x 100
Total cost includes purchase price, construction, permitting, and more. It’s the go-to metric for new construction and value-add deals.
Why it matters: A lower LTC means the borrower is putting in more equity—skin in the game that aligns incentives.
Combined-Loan-to-Value (CLTV)
CLTV includes all secured debt on the property, not just your piece: CLTV = (Total Secured Debt / Property Value) x 100
If a borrower has a $600,000 first lien and a $100,000 second lien on a $1 million property, CLTV is 70%.
Why it matters: It shows the full capital stack and lets you assess your position relative to other lenders.
After-Repair Value (ARV)
ARV is what the property’s expected to be worth after the rehab is complete. ARV-Based LTV = (Loan Amount / ARV) x 100
If the loan is $500,000 and the ARV is $1 million, your LTV is 50%—that’s a strong position to be in.
Why it matters: It helps evaluate risk in fix-and-flip and bridge loan scenarios.
Debt Service Coverage Ratio (DSCR)
DSCR measures whether the property’s income covers its debt payments: DSCR = Net Operating Income / Debt Service
A DSCR of 1.25 means the property earns 25% more than it owes in debt payments.
Why it matters: For income-producing assets, DSCR is essential. A low DSCR = cash flow problems = red flag.
Interest Reserve
A portion of the loan set aside to make interest payments, often seen in construction or bridge loans.
Why it matters: It ensures interest is covered even before the property generates income.
Draw Schedule
The loan isn’t always funded all at once. A draw schedule lays out when the borrower gets chunks of capital—usually tied to construction milestones.
Why it matters: It gives you control over how and when the funds are disbursed.
Prepayment Penalty
Some loans charge a fee if the borrower pays off early.
Why it matters: It can affect your expected yield. Make sure you know if a loan has one.
Recourse vs. Non-Recourse
Recourse means the lender can go after the borrower’s personal assets if the property sale doesn’t cover the debt. Non-recourse means the lender is limited to the collateral.
Why it matters: It changes the risk profile. Recourse offers more protection.
Origination Fee
The fee charged by the lender to set up the loan.
Why it matters: It is usually included in the total loan amount, reducing the actual distribution to the borrower.
Default Interest Rate
A higher interest rate that kicks in if the borrower falls behind.
Why it matters: It compensates investors for increased risk during non-performance.
Exit Strategy
This is the borrower’s plan for repaying the loan—sale, refinance, or rental income.
Why it matters: No clear exit? That’s a red flag.
Balloon Payment
A large payment due at the end of the loan term, common in short-term bridge loans.
Why it matters: It’s your capital return. Make sure the borrower has a plan to cover it.
Wrapping It Up
If you’re investing in real estate debt and not paying attention to these numbers, you’re missing the story. These aren’t just formulas—they’re a window into the deal’s risk profile, structure, and probability of success.
At Yieldi, we live by these metrics. Every loan we underwrite is designed to give investors transparency, protection, and passive income. That’s how we structure smarter deals—and it’s how you protect your capital.