Equity is what the property is worth minus what is owed against it. Investment-to-value, or ITV, is the price a buyer pays for your note divided by the property’s value. More equity and a lower ITV mean less risk for the buyer and a better price for you.
The two ideas describe one property from opposite sides. Equity is the payer’s stake in it and ITV is the buyer’s exposure to it, and a buyer checks both, alongside the other things that decide what a note is worth, before settling on a price.
The ratios on one property
Say the property is worth $200,000 and the payer owes $120,000 on your note, with no other loans. The payer’s equity is $80,000. Loan-to-value, or LTV, is the balance divided by the value, which here is 60%. If a buyer paid $108,000 for the note, their ITV would be $108,000 divided by $200,000, or 54%.
Example only, with round figures. The $108,000 is an assumed price and says nothing about what a note like this would fetch.
| Ratio | Top number | Question it answers |
|---|---|---|
| Loan-to-value (LTV) | Balance owed on your note | How much of the property’s value does the payer still owe? |
| Combined loan-to-value (CLTV) | Your balance plus every other loan on the property | How much is owed in total, counting all liens? |
| Investment-to-value (ITV) | Price the buyer pays for your note | How much of the property’s value has the buyer put at risk? |
The bottom number in each ratio is what the property is worth now, which may be more or less than it sold for when you created the note. LTV describes the payer’s position and ITV describes the buyer’s. Whenever a buyer pays less than the balance, their ITV comes out lower than the LTV on the same note. For short definitions, see loan-to-value on a note and investment-to-value.
Equity: the payer’s stake
If a property is worth more than the total of the loans against it, the difference belongs to the owner. It comes from the down payment made at the start, the principal paid down since, and any rise in the property’s value, and it can shrink again if the property loses value or falls into disrepair.
A buyer of your note cares about the payer’s equity for a blunt reason. A payer with a large stake can sell the property, pay off the note and keep the rest, so defaulting would cost them money they could otherwise take away.
Why buyers think in ITV
A buyer plans for the bad outcome. Suppose the payer stops and the buyer ends up taking the property. There will be legal costs, months without income, back taxes to cover, repairs, and a sales commission, and the sale itself may fetch less than full market value.
ITV tells the buyer how much room they have to absorb all of that and still get their money back. The lower it is, the more can go wrong before the buyer loses principal.
Buyers work to a ceiling: an ITV above which they will not buy, or will buy only at a higher yield, meaning a higher annual return on their money. The ceiling differs by buyer and by property type. An owner-occupied house is easier to sell than vacant land, so a buyer will generally accept a higher ITV on the house.
How ITV can cap your price
The price normally comes from the yield calculation, in which the buyer discounts your remaining payments at their target yield. ITV is a second test laid over the first.
If the price from the yield calculation gives an ITV under the buyer’s ceiling, nothing changes. If it lands over the ceiling, the buyer lowers the price until it fits, or offers to buy only part of the note.
A note with a perfect payment record can get a disappointing offer for this reason. However reliable the payer, a balance close to the property’s value leaves the buyer no cushion, and they price for that.
How a partial changes ITV
ITV depends on what the buyer invests, and a buyer who purchases fewer payments invests less against the same property.
On the example note used across this site, a full sale has the buyer paying $115,000 and a partial of the next 60 payments has the buyer paying $56,200. The property is the same in both cases, so the buyer’s ITV on the partial is less than half what it is on the full sale.
Illustrative example: a note paying $1,140 a month for 168 more months, with about $129,400 owed, priced at an 8% yield.
For a note with thin equity, selling part of the note can be the difference between a workable offer and none, and the payments after the ones you sold stay yours.
Where the property value comes from
Every ratio on this page rests on an estimate of what the property is worth today. Your opinion, the tax assessment and the original sale price are starting points, and a buyer will order a property valuation of their own before funding.
That figure may come from a broker price opinion, which is a local real estate agent’s written estimate based on recent sales, or from a formal appraisal on larger or more unusual properties.
An early quote based on your estimate of value can therefore move once the buyer’s valuation comes in. Expect the buyer’s figure to be cautious as well, because they are thinking about what the property would fetch in a forced sale.
What weakens equity
- A small down payment leaves the payer with little stake at the start, so the note relies on time to build one.
- Other liens, such as a loan ahead of yours, unpaid property taxes or a judgment, eat into the equity that protects your note.
- Values can fall, across a local market or for one neglected property.
- Interest-only payments never reduce the balance, so equity grows only if the property gains value.
- A sale price above market overstates the equity, because a buyer of the note values the property at what it would fetch with ordinary financing.
Work out your own figures first
You cannot create equity that is absent, but you can arrive knowing where you stand. Divide your balance by a sober estimate of today’s value to get the LTV, adding any other loans to the top number first. If the result is high, expect ITV to limit the price, and when you ask us to price the note, ask for a partial to be priced beside the full sale.
Then make the equity that exists easy to verify, with:
- the closing statement that shows the down payment
- proof that property taxes and insurance are paid, since unpaid taxes become a claim ahead of your note
- a list of improvements the payer has made, with photos if you have them
Those three, with the balance, your estimate of value and any other liens you know about, let a buyer work out LTV and a likely ITV on the first day, before their own valuation comes in.
Related questions
What ITV do note buyers want to see?
It varies by buyer and by property type, so we do not publish a figure. Lower is better for the buyer. A buyer will generally accept a higher ITV on an owner-occupied house than on land or a specialized building.
Is ITV the same as LTV?
No. LTV divides the balance owed by the property's value. ITV divides the price the buyer pays by the property's value. Because buyers pay less than the balance, ITV is the lower of the two.
What if the property is now worth less than the balance?
The note has no equity behind it, so a buyer is relying on the payer alone. Some buyers will still make an offer if the payment record is strong. Expect a lower price, and ask for a partial to be priced as well.