LTPP: Loan To Purchase Price in Commercial Real Estate
LTPP, or loan to purchase price, is a metric that compares the size of the loan to the purchase price of the property. It's similar to loan to value (LTV) ratio, but slightly different, since the purchase price and the value of a property can often be different. However, much like LTV, LTPP is also a good measure of leverage-- the higher the LTTP, the more leverage the borrower/buyer is using.
Better Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get QuotesWhat is LTPP in Commercial Real Estate?
LTPP, or loan to purchase price, is a metric that compares the size of the loan to the purchase price of the property. It's similar to loan to value (LTV) ratio, but slightly different, since the purchase price and the value of a property is often different. However, much like LTV, LTPP is also a good measure of leverage-- the higher the LTPP, the more leverage the borrower/buyer uses.
For example, if a borrower took out a $900,000 loan on a commercial property priced at $1,000,000, the loan would have an LTPP of 90%-- regardless of the actual value of the property itself.
In comparison, a similar metric, LTC, or loan to cost, is used to calculate the loan amount to the cost of a rehabilitation or construction project. LTC is determined by dividing the loan amount by the total cost of the project. Higher LTPPs, LTVs, and LTCs all represent higher risks for lenders. As a result, it's important to remember this when applying for a commercial real estate loan.
To learn more, speak with a commercial real estate loan specialist today.
Related Questions
What is the difference between Loan To Purchase Price (LTPP) and Loan To Value (LTV) in commercial real estate?
The difference between Loan To Purchase Price (LTPP) and Loan To Value (LTV) in commercial real estate is that LTPP compares the size of the loan to the purchase price of the property, while LTV compares the size of the loan to the value of the property. LTPP is a good measure of leverage, while LTV is a good measure of risk. For example, if a borrower took out a $900,000 loan on a commercial property priced at $1,000,000, the loan would have an LTPP of 90%, regardless of the actual value of the property itself. In comparison, Loan To Cost (LTC) is used to calculate the loan amount to the cost of a rehabilitation or construction project. Higher LTPPs, LTVs, and LTCs all represent higher risks for lenders.
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What are the advantages of using Loan To Purchase Price (LTPP) in commercial real estate?
The advantages of using Loan To Purchase Price (LTPP) in commercial real estate are that it is a good measure of leverage, and it is a metric that compares the size of the loan to the purchase price of the property. It is similar to loan to value (LTV) ratio, but slightly different since the purchase price and the value of a property is often different. A higher LTPP represents higher risks for lenders, so it is important to consider when applying for a commercial real estate loan.
Source 1 Source 2 Source 3 Source 4 Source 5What are the risks associated with Loan To Purchase Price (LTPP) in commercial real estate?
The higher the LTPP, the more leverage the borrower/buyer uses, which results in higher risk for the lender. Higher leverage loans call for more conservative pricing and terms, while commercial property loans with a lower LTPP command more competitive structures (i.e. lower rates and more favorable loan terms).
Other factors lenders pay close attention to include but are not limited to: location, borrower financial strength, pro forma income and expenses, and asset class.
What are the most common types of Loan To Purchase Price (LTPP) financing in commercial real estate?
The most common types of Loan To Purchase Price (LTPP) financing in commercial real estate are bridge loans, permanent loans, and SBA loans. Bridge loans are short-term loans that are used to finance a property until a more permanent financing option can be secured. Permanent loans are long-term loans that are used to finance the purchase of a property. SBA loans are government-backed loans that are used to finance the purchase of a property.
Bridge loans typically have higher interest rates than permanent loans, but they are often easier to qualify for. Permanent loans typically have lower interest rates than bridge loans, but they require more paperwork and a longer approval process. SBA loans typically have the lowest interest rates, but they require a lot of paperwork and a long approval process.
The terms of each loan type vary depending on the lender, the borrower, and the property. It's important to compare different loan products to find the best option for your needs.
What are the eligibility requirements for Loan To Purchase Price (LTPP) financing in commercial real estate?
In order to be eligible for Loan To Purchase Price (LTPP) financing in commercial real estate, you must meet the lender's loan-to-value or loan-to-cost ratio. This ratio is easily calculated by dividing the loan amount by the purchase price or cost of the property. For example, if a property is valued at $1 million and a lender restricts its offer to a 70% LTV, you will be unable to get a loan larger than $700,000.
It's important to remember that higher LTPPs, LTVs, and LTCs all represent higher risks for lenders. As a result, it's important to be aware of this when applying for a commercial real estate loan.
What are the tax implications of Loan To Purchase Price (LTPP) financing in commercial real estate?
The tax implications of Loan To Purchase Price (LTPP) financing in commercial real estate depend on the type of loan and the tax credits available. Generally, higher LTPPs, LTVs, and LTCs all represent higher risks for lenders, so it's important to consider this when applying for a commercial real estate loan.
The federal government's Low-Income Housing Tax Credit (LIHTC) program allows investors in qualified low-income properties to take a dollar-for-dollar deduction against their federal income taxes. The Historic Tax Credit (HTC) program offers a tax credit based on the percentage of eligible expenses used to rehabilitate a historic building for commercial use, and the New Markets Tax Credit Program provides a tax credit for commercial development in low-income areas.
It's important to consult with an experienced tax professional in order to better understand how each of these tax benefits may be able to work for you. Real estate taxes can be incredibly complex, and the more effort you put into preparation and documentation, the more money you’ll save in the long run.