Investment-to-value, or ITV, is the price a buyer pays for your note divided by the value of the property behind it. It shows how much of the property’s value the buyer has at stake. Buyers prefer a low ITV, and some set a ceiling they will not go above.
Working it out
Divide the price the buyer pays for the note by the current value of the property. Suppose a buyer pays $115,000 for a note and the house securing it is worth $230,000. The ITV is 50%.
Illustrative example. The $115,000 is the full-sale price from the worked example used across this site, and the $230,000 property value is a round figure chosen for the arithmetic.
The property value in the calculation is today’s value as the buyer estimates it. The price the property sold for when you created the note may be well out of date.
How ITV differs from loan-to-value
Loan-to-value, or LTV, is the balance owed on the note divided by the property’s value. It describes the payer’s position: how much they owe against what the property is worth. ITV describes the buyer’s position, and whenever the buyer pays less than the balance, the ITV comes out lower than the LTV on the same note. In the example, about $129,400 is owed on the $230,000 house, an LTV of about 56% beside the ITV of 50%.
| Loan-to-value (LTV) | Investment-to-value (ITV) | |
|---|---|---|
| Top number | Balance the payer owes | Price the buyer pays |
| Bottom number | Property value | Property value |
| What it measures | The payer’s equity | The buyer’s cushion |
| Changes with the offer | No | Yes |
Equity is the part of the property’s value that is not owed to a lender. A buyer reads both ratios: LTV for how much the payer stands to lose by walking away, and ITV for how much the buyer stands to lose if the payer does. The first is defined on what loan-to-value means on a note.
Why buyers care about it
A buyer plans for the case where the payer stops paying. If that happens, the buyer’s way out is the property. They may have to foreclose, which is the legal process of taking and selling the property to recover the debt, and then pay legal costs, back taxes, repairs and a selling agent while they wait for a sale.
The gap between what the buyer paid and what the property is worth has to cover those costs. A low ITV leaves room to absorb them and still get the investment back, while with a high one a modest drop in the property’s value or a repair bill can mean a loss.
How ITV affects your price
ITV is one of several inputs to what your note is worth. Its first effect is on the yield, the yearly return a buyer needs. A note with a low ITV is safer to own, so a buyer can accept a lower yield and pay you more.
It can also cap the price outright. A buyer who works to a maximum ITV for a kind of property will cut an offer down to that ceiling if the price their yield would produce sits above it. When that happens, the property’s value is what limits your price, however good the payment record is. A lower valuation from the buyer raises the ITV on the same offer and can pull the price down with it.
What makes your note’s ITV better
- A large down payment at the original sale, so the loan started well below the property’s value.
- Years of payments, each of which reduces the balance and with it the price a buyer needs to pay.
- A property that has gained value or been improved since the sale.
- First lien position. If another loan sits ahead of your note, a buyer counts that loan’s balance too, because it gets paid first.
If ITV is still holding the price down, a partial purchase can help. The buyer purchases a set number of payments and pays a smaller amount, and a smaller investment against the same property means a lower ITV. In the example, $56,200 for the next 60 payments is about 24% of the $230,000 value. That may bring a deal inside a buyer’s limit when a full sale would not fit. The partial purchases guide explains how partials work.
Estimating your own ratios
You can do a rough version before anyone quotes. Divide your balance by a realistic current value for the property to get the LTV. The ITV on a full sale will be lower than that by however much the buyer discounts the note.
When you send in a note for pricing, include the property address and what you believe it is worth, and ask each buyer what value they used, since that shows whether ITV limited the price. If their value is well below yours, ask what it was based on before you accept the number.
Related questions
Is a low ITV good for me as the seller?
Yes. A low ITV means the buyer has a wide cushion in the property, so the note looks safer. That supports a lower yield for the buyer and a higher price for you.
Who decides what the property is worth for ITV?
The buyer does, from a valuation they order during their review, such as an agent's price opinion or an appraisal. Your own estimate is a starting point, and good information about the property helps.
Does ITV matter on a note with no real estate behind it?
There is no property value to divide by, so the ratio does not apply in the same way. Buyers of unsecured or business notes look at other protections, such as business assets or a personal guarantee.