What is Loan to Cost in Real Estate?

What is Loan to Cost in Real Estate?

Loan to Cost (LTC) in real estate is a financial metric used to compare the financing amount of a real estate project relative to its total cost. It is calculated by dividing the loan amount by the total cost of the project, including the purchase price, construction, renovations, and any other expenses directly related to the development or acquisition of the property. LTC is expressed as a percentage, providing lenders and investors with a quick measure of how much of the project's total cost is being financed through debt, as opposed to equity or other sources of funding. This ratio is crucial for evaluating the risk level of a loan: a higher LTC ratio indicates more risk for the lender, as it suggests that a larger portion of the project is being funded with debt.