Understanding Loan-to-Value (LTV) for Rental Properties

When evaluating a rental property, one of the key metrics you should understand is Loan-to-Value (LTV). LTV is the ratio of your mortgage amount to the appraised value of the property. For rental properties that are not distressed, a typical LTV of around 75% (meaning 25% down payment) often results in a break-even scenario. Why? Because the market usually sets rents in a way that covers your mortgage and expenses, leaving little surplus cash flow.

Why 25% Down Can Be Enough

If you secure a decent mortgage rate (around 5%) and put down 25%, you may find that your monthly income barely covers your expenses. This setup works if you have enough cash reserves to handle unexpected costs like maintenance, repairs, or temporary vacancies. The key is to be prepared for surprises while trusting that the property’s location provides potential appreciation over time.

Rent Growth & Location Matter

Even with a 75% LTV mortgage, if your property is in a strong neighborhood, you can often rely on steady rent growth—commonly 2–3% annually, or roughly in line with local inflation. This gradual increase in rental income can help improve your cash flow over time and reduce the risk of carrying the mortgage during market fluctuations.

When to Wait for Higher LTV

If immediate cash flow is essential, or if your portfolio is small and you want to preserve liquidity, it may make sense to wait until you can secure a higher LTV. A higher LTV reduces your upfront investment and can maximize returns in growth areas, but comes with higher risk and requires confidence in your ability to manage the property effectively.

Key Takeaways

  • A 75% LTV with a 25% down payment is common for non-distressed rental properties.
  • Expect break-even cash flow in many markets; plan for maintenance and vacancies.
  • Focus on property location—good neighborhoods can deliver rent growth and appreciation.
  • If cash flow is critical or your portfolio is small, consider waiting for higher LTV opportunities.

Using software like MyDoorsPro can help you evaluate LTV scenarios, calculate cash flow, and simulate the impact of different mortgage rates and down payments. Interactive calculators allow you to see exactly how various choices will affect your bottom line, helping you make informed investment decisions.