Why Loan-to-Value (LTV) Ratio Is the Cornerstone of Every Good Private Money Deal
In private money lending, few metrics matter more than the loan-to-value (LTV) ratio. It’s one of the simplest ways to gauge the risk and reward of a deal — yet it’s also one of the most misunderstood.
At its core, LTV measures how much you’re lending compared to the property’s value. If a lender funds $650,000 on a property worth $1,000,000, the LTV is 65%. That 35% gap between the loan and the property’s value represents the lender’s equity cushion — and it’s that cushion that protects investors when markets shift.
Why Loan to Value Matters So Much
- It defines your margin of safety.
The lower the LTV, the greater your protection. Real estate values can fluctuate, but a conservative LTV ensures there’s built-in equity to absorb potential losses. If the borrower defaults, the property can be sold or refinanced with enough value left to recover the principal and often the accrued interest. - It reflects disciplined underwriting.
Any lender can offer a high-LTV loan to chase yield — but that often means taking on more risk than the return justifies. A fund that consistently maintains a conservative LTV, like 60–65%, signals that its underwriting is focused on preserving investor capital, not just maximizing loan volume. - It protects returns during downturns.
In a market correction, homes don’t lose all their value at once. A well-structured LTV allows a loan to remain fully secured even if property prices dip 10–15%. That stability is one reason private mortgage funds can keep distributing income even when broader markets are volatile. - It creates flexibility in exits.
When there’s sufficient equity in a deal, a lender can work collaboratively with a borrower — restructuring terms, refinancing, or selling the note — without being forced into a loss scenario. Low-LTV deals give lenders options; high-LTV deals trap them. - It shows borrower commitment.
A borrower willing to contribute significant equity demonstrates confidence in the project. They have “skin in the game,” which naturally aligns their interests with the lender’s.
The ZINC Approach
At ZINC Income Fund, our average loan-to-value ratio is around 65%. That means there’s typically a 35% buffer of real equity protecting our investors’ capital on every loan.
This conservative structure is one of the reasons we’ve had zero principal losses since inception. By lending in strong Central California markets, focusing on first-position loans, and keeping LTVs low, we ensure every deal is well-secured and positioned for success.
When it comes to private money lending, a strong LTV isn’t just a number — it’s the foundation of investor confidence. It’s what separates a good deal from a risky one and ensures that no matter how the market moves, capital remains protected.
At ZINC, we don’t chase yield — we build stability. And it starts with loan-to-value discipline.