Loan-to-Cost Ratio

The Loan-to-Cost (LTC) Ratio is a financial metric used to assess the risk of a real estate project. It is calculated by dividing the total loan amount by the total cost of the project, which includes the purchase price and any expenses for renovations or development. For example, if a project costs $1 million and the loan is $800,000, the LTC ratio would be 80%. A higher LTC indicates more risk for lenders, as it signifies a greater proportion of the project's cost is financed through borrowed funds. Investors often use this ratio to gauge a project's feasibility.