ITV stands for investment-to-value. It compares what you pay for a note to what the home is worth. If you pay $50,000 for a note on a $100,000 house, your ITV is 50%.
It's one of the first numbers I look at on any deal. Here's why.
How to figure ITV
Divide what you pay by the home's value. That's it.
- You pay $60,000. The home is worth $100,000. ITV is 60%.
- You pay $65,000. The home is worth $100,000. ITV is 65%.
- You pay $90,000. The home is worth $100,000. ITV is 90%.
ITV vs. LTV
You may have heard of LTV, or loan-to-value. LTV compares what the borrower owes to the home's value. ITV compares what you paid. When you buy a note at a discount, your ITV can be much lower than the LTV. That gap is extra protection.
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Why the gap matters
If the borrower stops paying, the home is the backstop. But getting to it costs money: legal fees, back taxes, insurance, repairs, and selling costs. And it takes time. The lower your ITV, the more room you have to cover all of that and still get your money back.
Why I stay at 65% or less
I keep every deal at 65% or less of the home's value. That leaves a cushion of at least 35% for costs, a slow foreclosure, or a drop in value. In judicial states, where foreclosure takes longer, a deal needs an even bigger cushion.
Getting the value right
ITV is only as good as the value behind it. A low ITV on a made-up value protects nobody. Ask how the value was set:
- A broker price opinion (BPO) or appraisal?
- Recent sales of similar homes nearby?
- Has anyone seen the property, inside or out?
- Were back taxes and repairs taken into account?
See every check I run in my due diligence checklist.
Common questions
What is a good ITV for a mortgage note?
Lower is safer. I keep my deals at 65% or less of the home's value. Many careful investors aim well under 80%.
What's the difference between ITV and LTV?
LTV compares what the borrower owes to the home's value. ITV compares what the investor paid. A note bought at a discount has a lower ITV than LTV.
How is the home's value figured?
Usually with a broker price opinion, an appraisal, or recent sales of similar homes nearby. Ask which one was used and how recent it is.
Written by Larry Hoffman
Managing Member of LJH Investments, LLC in Madison, Indiana. In real estate since 2006, with 300+ mortgage notes bought. Author of Mailbox Money Retirement.
General education, not legal, tax, or investment advice. Talk with your own attorney and tax adviser about your situation. All investing has risk, including loss of principal.