July 2023

Foreclosures across the U.S. are on the rise and nearing pre-pandemic levels, according to real estate data firm ATTOM.

ATTOM’s midyear foreclosure activity report found that foreclosure activity has been gradually increasing over the last few quarters as COVID-related policies have ended.

Across the U.S., 0.13% of all housing units foreclosed in the first half of 2023. Foreclosures are up 13% from the same period in 2022 and up 185% from the same period two years ago.

“Similar to the first half of 2022, foreclosures activity across the United States maintained its upward trajectory, gradually approaching pre-pandemic levels in the first half of 2023,” Rob Barber, CEO of ATTOM, said in a statement.

Foreclosure Trend Could Continue but Remains Below Pre-Recession Levels

One of the reasons for the rise in foreclosures is that housing relief measures put in place during 2020 to assist homeowners struggling to pay their mortgages ended in May.

While foreclosures in the second quarter of 2023 are below pre-2008 recession levels in 78% of major markets, there’s been a notable uptick in the last six months. A total of 97,608 properties filed for foreclosure during the second quarter of 2023, far below pre-Great Recession quarter averages of 278,912.

Still, the rise in foreclosures could continue, said Barber. Properties that have started the foreclosure process were up 15% from the first half of 2021 and up 36% from the first half of 2020.

“Although overall foreclosure activity remains below historical norms, the notable surge in foreclosure starts indicates that we may continue to see a rise in foreclosure activity in the coming years,” Barber said.

Lenders foreclosed on a total of 22,672 properties in the first half of 2023, which was up 9% from the first half of 2022 and 133% from the first half of 2021, but down 40% from the first half of 2020.

States With Largest Foreclosures in First Half of 2023

So, which states saw the greatest increase in foreclosure activity in the first half of the year when compared to year-over-year numbers? That would be Maryland, which saw an uptick of 100%, followed by:

• Oregon, at 99% 
• Alaska, with a rise of 95%
• West Virginia, which increased 83%
• Arkansas, which was up 72%

The states with the highest foreclosure rates were Illinois, which saw 0.25% of all housing units with a foreclosure filing. New Jersey, Maryland, Delaware, and Ohio also all had high foreclosure rates.

While foreclosure activity was below pre-recession averages for most metro areas, it was above average in:

• Honolulu
• Richmond, Virginia
• Baltimore
• Virginia Beach, Virginia
• Albany, New York
• Montgomery, Alabama

Cleveland and Atlantic City, New Jersey tied for the largest foreclosure filing among the 223 metropolitan statistical areas with a population of at least 200,000 in the first half of the year, at 0.33%, followed by Fayetteville, North Carolina, and Columbia, South Carolina at 0.30% and 0.29, respectively.

California, Florida, Texas, New York, and Illinois all had the greatest number of foreclosure starts, which indicates there could be an increase in foreclosures in those states in the coming quarters.

Top 10 States With Highest Foreclosure Filings

The Bottom Line

While foreclosures rose in the first half of 2023, we are still far below the average foreclosure rates seen before the 2008 recession. It’s likely that we will see a rise in foreclosures in the coming quarters or even years as homeowners adjust to pandemic relief measures ending, but there’s no reason to think that the real estate market is crashing anytime soon. 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

If you run a small, local business, chances are you’ve got some sort of a website. You may even be set up to sell a few products online, here and there. But you may not have tapped the massive potential of building out a real e-commerce arm for your business. And you might not realize just how easy — or how lucrative — it’s become for small, local businesses to move online.

If you’re still mostly bound to brick-and-mortar, it’s time to consider a change. Here are some low-risk, high-reward ways to successfully scale into the digital world.

1. Do a Digital Reboot

As noted, you may already have a great website or even a decent online store. But it’s likely you could be doing much more to make it competitive with other e-commerce sites in your niche.

If it isn’t already, your site should be hosted on—or at least integrated with—a platform that’s designed for e-commerce, like Shopify, Squarespace or BigCommerce. Make sure it’s easy to use, intuitive to navigate and has a clean, simple design. It might be worth having a specialist conduct a user experience audit.

Perhaps most importantly, ensure your site is optimized for mobile users. Remember that 91% of Americans ages 18 to 49—likely the bulk of your target customers—shop on their smartphones. Most web design platforms let you convert your desktop designs to mobile layouts almost automatically. But you still need to make sure the mobile version is attractive and usable.

2. Leverage the Power of Online Testimonials

Getting good product reviews on your site and on other platforms can do wonders for your business. Consumers don’t trust brands, but they trust other people’s experience of a brand or product. Positive reviews can be just as effective as hearing directly from people they know in real life.

Smallbiz Technology recommends that businesses feature reviews and testimonials directly on their website and social media channels, natch. But they also note that positive reviews on third-party sites like Google, Yelp, and Trustpilot can generate tons of traffic.

To encourage customers to write reviews, they suggest offering customers free products or discounts as incentives. But note that if you sell products through a marketplace like Amazon, exchanging gifts for reviews could violate their policies. Alternatively, you can reach out and simply ask customers who like your product to take a moment to do a short write-up.

3. Offer Convenient Payment and Shipping Options

Your customer won’t buy from you online if you don’t make it as easy for them as shopping on Amazon. It’s imperative to offer fast, free or cheap shipping and eliminate any trace of friction from the shopping experience. The smallest details can send a customer packing even when they were already pretty serious about making a purchase.

Whatever you do, don’t force your customers to create an account before checkout. That’s one of the fastest ways to turn a ready-to-buy customer into one who’s just closed your site’s browser tab. It’s also vital to offer a number of convenient payment options, including PayPal, Apple Pay and Google Pay in addition to the standard credit cards.

Packing and shipping your own orders in-house may save you money when you’re just starting out. But as a small business, you don’t have the infrastructure to keep doing that at scale. Eventually, you’ll need to contract with a third-party fulfillment service. Shopify offers its own in-house option and maintains a list of other recommended fulfillment services you can try.

4. Be Smart About Email Marketing and Social Media

One advantage you have as a small local business owner is that you already have a devoted following. You’ve got people in your corner who support your business and want to see it flourish. If you create content that speaks to your biggest champions, they’ll be excited to share it with others.

Email marketing remains one of the best ways to drive engagement and sales for your brand. After all, it’s one of the few forms of brand communication that customers actually enjoy receiving. Still, carefully consider your content—you don’t want to irritate your loyal fans with ads for the same old products. Use email to make announcements, share informative blog posts or offer valuable discounts. That’s the kind of content your devotees will be happy to pass along to their friends.

Social media is likewise a powerful tool for bonding with current customers and reaching new ones. This is especially true if you actively engage with users, such as responding to Instagram comments or stitching videos on TikTok. Partnering with influencers through a platform like Grin or Afluencer could also help drive engagement.

Don’t Reinvent the Wheel

As recently as five or 10 years ago, small businesses had to transition to e-commerce on their own. They needed their own systems for everything from packing and shipping to handling customer service to accepting credit card payments.

All that has changed. Now, there’s an easy, affordable third-party solution for just about any e-commerce problem you can think of. You’ve already got a small, likely overworked staff. Don’t make them—or yourself—create systems from scratch when there’s probably a ready-made solution a short Google search away.

A real estate attorney is required at closing in many states. Even if your state doesn’t demand that a real estate lawyer appear, having a legal professional representing your interests is usually a good idea.

When you’re investing in real estate, finding the right lawyer is essential. Your real estate attorney assists you in navigating every aspect of the process. If legal issues arise in real estate transactions, you have someone who knows real estate laws fighting for you.

What Is a Real Estate Attorney?

As with doctors, lawyers have their own areas of specialization. While some attorneys are generalists, when buying and selling property, you should hire a true real estate lawyer to advise you and protect your interests. Such an attorney is well-versed in property law concerning state laws.

If you are considering investing out of state, look for attorneys licensed to practice in other states.

What Does a Real Estate Attorney Do?

A real estate attorney represents you in all matters related to real estate law. Your real estate attorney’s role may include the following tasks:

Legal documents preparation

Even simple real estate transactions can involve substantial paperwork. More complicated situations only increase the sheer volume of legal documents.

For instance, a real estate lawyer arranges with a title company to conduct a title search. The property must have a clear title with no third-party claims. Once the title company provides a report, your real estate attorney reviews it and works with your mortgage lender or other relevant parties if any title issues exist.

Ensuring all legal documentation is correct is a primary role of real estate attorneys. Real estate is likely your biggest investment. Working with a licensed attorney is critical.

Contract review

During the review process, your lawyer should catch any errors in closing and other documents involved in the real estate transaction. The start of the deal is the real estate contract.

Often, a real estate agent draws up the initial contract. Real estate lawyers must review the purchase contract carefully, as it sets forth the buyer and seller’s obligations. The attorney then drafts riders, also known as amendments, for their clients’ needs. These amendments may involve financing and appraisal contingencies, personal property included or excluded, and unique provisions affecting the property in question.

Dispute resolution

Real estate transactions don’t always run smoothly. Perhaps there is a lien on the property, a title issue, or a boundary question. Your real estate lawyer works to resolve these disputes so you can move forward with your real estate transaction.

Business formation

Using the right business formation for investment properties protects you from liability. Your real estate lawyer will work with you to determine whether an LLC, partnership, or some other type of business entity is best for your legal needs.

Financing and refinancing

 A real estate attorney may advise you on mortgage financing and when to refinance your mortgage loan. They may work with a mortgage lender or commercial real estate lender to help with financing.

Real estate attorneys also guide you on related legal matters, such as tax implications when selling property.

Equity and debt investment structures

Real estate lawyers assist clients in the structure and management of their equity and debt, focusing on maximizing their returns.

Drafting tenant leases

Your real estate lawyer should draft a strong lease agreement for tenants to avoid potential disputes. All parties benefit from a clear lease agreement that protects their interests.

You could simply use a boilerplate lease agreement and save some money as a landlord. That’s a penny-wise and pound-foolish, as a professional with a thorough knowledge of real estate law ensures your real property is as fully protected as the law allows.

Dealing with tenant complaints

When a tenant complains, you must know whether that complaint is legitimate according to the terms of the lease or applicable local, state, or federal law. Your lawyer will explain landlords’ and tenants’ legal rights and responsibilities and whether the complaint breaches the lease agreement.

The attorney will act to resolve the complaint before it escalates into costly litigation.

Property tax advice

Real property ownership means paying property taxes. Your current property taxes may not reflect the realities of the market. Your lawyer can advise you about filing a property tax appeal to fight an overvalued assessment.

Benefits of Partnering With a Real Estate Attorney

When you partner with a real estate attorney for your investment properties, they can handle virtually all of the process. That leaves you, as the investor, more time to concentrate on obtaining a good return on the investment.

If problems arise before, during, or after the purchase of a property, you can rely on your real estate lawyer to sort them out.

Real estate attorneys will advise you about backing out of a deal and avoiding a costly mistake.

The bottom line is that the real estate attorney you hire is always working to protect your best interests.

How Much Does a Real Estate Attorney Cost?

A real estate attorney’s services may be inexpensive, but remember, you get what you pay for. How much you can afford in legal fees is one of the first things you should determine when considering hiring a lawyer for your investment team.

A real estate lawyer may charge you hourly or flat rates. Remember that while a more experienced real estate attorney will charge higher fees, their expertise is worth it.

How To Find a Real Estate Attorney

You can always find a real estate attorney online. Googling is a great way to get started, but the goal is to find a good real estate lawyer, not an average attorney.

Your best bet is often asking for recommendations from those in the real estate industry, such as a real estate agent or fellow real estate investor. They know the best real estate attorneys in your area. Friends or family with real estate experience are another good source of advice.

Look for lawyers with experience in your particular field. For instance, if you’re investing in commercial property, look for attorneys specializing in that domain. Some real estate lawyers are generalists, doing whatever real estate work comes their way. Because the various realms of real estate investing are so different, these attorneys are more likely to make mistakes. They are not necessarily experts in real estate law.

Rather than go with a larger firm, check out smaller practices. You will work directly with one attorney rather than being delegated to less experienced associates at larger firms.

What To Ask a Real Estate Attorney

Conduct interviews before deciding on whom to hire as a real estate attorney. You seek a long-term professional advisor, so you must know exactly what to expect. Ask the following questions:

• What is your fee schedule? Do you charge a flat fee or an hourly rate?
• Where did you go to law school?
• What is your experience with either residential, commercial, or industrial real estate investing?
• How many real estate transactions have you closed?
• Do you go to court regularly to handle evictions?
• Do you have any potential conflicts of interest?

Save Money in the Long Run With a Real Estate Attorney

Legal fees aren’t cheap, but they are far less expensive than losing a property due to an avoidable legal problem. After all, real estate investing aims to maximize profits while reducing risks. The right real estate attorney helps to fulfill both objectives.

By hiring a real estate attorney as part of your investment team, you should save money over the long term.  That’s because the work of the attorney you hire can limit future problems.

Once a real estate attorney is hired, you have someone to advise you on every aspect of your investment strategy while protecting your interests. Smart investors know how valuable the services of a lawyer are when dealing with complicated legal matters pertaining to property.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Although filling out IRS tax forms each year isn’t any fun, it is a necessary part of real estate investing. Thankfully, the tax forms for rental properties aren’t complicated. If you are investing as a member of a partnership or as an S corporation, you will need to report your earnings on Form 8825.

Making sure you fill out Form 8825 correctly is vitally important. Accurate financial reporting is required and could help you determine if you qualify for certain tax deductions.

What Is Form 8825?

IRS Form 8825 is a special tax form specifically for reporting the rental income and expenses of a partnership or S corporation. The form allows you to record the financial information for eight different properties. If you have more than eight, the additional properties can be reported on a second Form 8825.

Form 8825 is not to be used by sole proprietors or single-member LLCs. If you are filing as a sole proprietor or single-member LLC, you will record your rental real estate activities on Schedule E (Form 1040), which is used to report supplemental rental real estate income and expenses.

Who Uses Form 8825?

Form 8825 reports the rental income of partnerships or S corporations in the United States. Suppose your S corporation owns two apartment buildings, a self-storage facility, and three single-family rental homes. In that case, you will need to include the income and expenses of each property on the form.

If you are reporting partnership income, Form 8825 should be attached to Form 1065 (U.S. Return of Partnership Income). If you report S corporation income, Form 8825 should be attached to Form 1120S (U.S. Income Tax Return for an S Corporation).

It’s important to point out that Form 8825 can be used if your partnership is an LLC, but it doesn’t have to be used for all LLCs. A single-member LLC, for example, would use Schedule E (Form 1040).

What Type of Expenses Go On Form 8825?

The IRS only taxes rental real estate activity on the net income earned. Net income simply refers to gross income less expenses. To derive the taxable net income, Form 8825 includes lines to enter certain expenses, which include:

• Advertising
• Auto and travel
• Cleaning and maintenance
• Commissions
• Insurance
• Legal and other professional fees
• Interest
• Repairs
• Taxes
• Utilities
• Wages and salaries
• Depreciation
• Other

If you aren’t sure whether a particular operating expense qualifies, check the Internal Revenue Service website. You can also consult a tax professional like a CPA to clarify the issue.

How Do You Fill Out Form 8825?

Although IRS form 8825 may appear somewhat intimidating when you first look at it, it’s not complicated. The form is logical and easy to follow. The required information for each line is clearly labeled, and the instructions are included when you download the form.

1. Enter your name and employer identification number (EIN). It’s important to ensure you include this information on all the tax forms you submit. This will help to prevent errors or delays if a form is lost or misplaced.
2. List the physical address of each property you own. You must also include the property type (multi-family, single-family, short-term rental, etc.). You will also need to indicate the number of days the property was rented and the number of days it was used for personal use (if any).
3. Enter the gross income for each property. Be sure to match the right income to the right property. For example, the income you list in column A must match the property you listed in row A.
4. Enter all of your expenses for each property. If you have any expenses not listed, you can include them in the section labeled “Other.” Add all of your expenses for each property to determine the total. You then subtract the total expenses from the gross income for each property to determine the income or loss.
5. Add your gross rental income (line 2, columns A-H) and gross rental expenses (line 16, columns A-H).
6. Enter the net gain or loss from the sale of rental real estate property. This information is found on Form 4797, Part II, line 17.
7. Enter your net income or loss from any rental real estate activity that is from a partnership, estate, or trust where the S corporation or partnership is a beneficiary or partner. This information is obtained from Schedule K-1.
8. Enter the names and EIN of the partnerships, estates, or trusts from the previous step.
9. Determine your net rental real estate income or loss. This is done by adding everything in steps 5-7. You will then enter the amount either on Form 1065 (for partnerships) or Form 1120S (for S corporations).

What Does a Practical Example Look Like?

The best way to understand how to fill out Form 8825 is with a practical example. Let’s say you are in a real estate partnership that owns the following properties:

• One multi-family property
• Three single-family homes
• Two self-storage facilities

Because you are in a partnership and your rental real estate activities are not from a sole proprietor or single-member LLC, you must complete Form 8825 to report your rental real estate income.

After filling out the name and EIN number on Form 8825, you will enter each property’s physical address and the number of days it was used as a rental in rows A-H. Be sure to list each of the single-family homes and self-storage facilities separately.

You will then enter your gross rental income and expenses for each property in columns A-H to obtain your net gain or loss. Next, enter the income or loss from Schedule K-1 on line 20a. Enter the name of each partner and the EIN, and then combine lines 18a-20a. You will then enter the result on either Form 1065 (for partnerships) or Form 1120S (for S corporations).

That’s all there is to it. Although many tax forms have earned reputations for being difficult and time-consuming, Form 8825 is simple and easy.

How Do You List LLCs on Form 8825?

Many real estate investment partnerships form limited liability companies (LLCs) to protect their personal assets in case they are sued. If someone slips and falls in a rental unit, the owner’s bank accounts, homes, and other personal assets are protected if the suit is successful. LLCs can be either single-member (one owner) or multi-member.

Because Form 8825 is only for partnerships or S corporations, you will only list LLCs on the form that are either partnerships or S corporations for tax purposes. If you have a single-member LLC, rental income will be reported on Schedule E (Form 1040).

Is Form 8825 the Same as Schedule E?

Form 8825 and Schedule E (Form 1040) are similar insofar as they are used to report rental real estate income. They are, however, two separate and distinct forms.

The primary difference between the two forms is that Form 8825 is used if you declare on behalf of a partnership or S-corporation. On the other hand, Schedule E is used to report an individual owner’s earnings. Schedule E is also used to report other forms of supplemental income.

The process for reporting rental real estate income and expenses on Schedule E is similar to Form 8825. You must include the physical address of each property and its type and the number of days it was used as a rental. You will then enter your gross rental income and itemize your expenses to determine your profit or loss for each property.

What Is Schedule K-1?

Schedule K-1 is a form you will need to fill out to obtain important information included on Form 8825. The form determines the net income or loss from rental real estate activities from partnerships, estates, and trusts. Instead of reporting the full income or loss, Schedule K-1 determines each partner’s share.

Let’s assume a partnership has four members and earns $200,000 annually. Each partner will complete a Schedule K-1 to report $50,000 in individual earnings (assuming the profit is split evenly). This amount is then transferred to line 20a of Form 8825.

The Bottom Line

If you are a sole proprietor or a single-member LLC, you don’t have to worry about Form 8825. If your rental real estate activities are part of a partnership or your business is an S corporation for tax purposes, however, you must include the form when submitting your income taxes.

Thankfully, Form 8825 isn’t complicated or difficult to understand. It can be filled out in just a few minutes, which allows you to finish your taxes and get back to doing what you do best—closing more deals and growing your portfolio.

Dreading tax season?

Not sure how to maximize deductions for your real estate business? In The Book on Tax Strategies for the Savvy Real Estate Investor, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year—but to also prepare an ongoing strategy that will make your next tax season that much easier.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

In the dynamic corporate landscape of that will be 2024, leaders’ and founders’ roles have evolved significantly. Leading a company is more than just about managing teams or bottom-line growth. Leaders must exhibit adaptability, resilience, and an empathetic understanding of their teams while maintaining mental and emotional health. Their responsibility to their mission, vision, and team goes far beyond their profit

Seeing the Future

Leaders today must navigate a world transformed by global uncertainties, technological advancements, changing business models, increased regulatory scrutiny, and a renewed focus on sustainability and corporate social responsibility. Leaders have a lot of minefields to navigate today. However, these challenges also serve as catalysts for personal growth, leadership development, and increased resilience, equipping executives with the necessary skills to thrive in complex environments.

These challenges are coupled with the pressure of maintaining a company’s financial health and employee well-being, which can often have significant implications on an executive’s mental and physical health. Executives and leaders often feel the pressure to maintain an image of strength and competence, which can lead to reluctance in acknowledging or seeking the help and support they need. For all of these components to be on their shoulders, our leaders must have the resources, skills, and knowledge to thrive and adapt in our ever-changing future.

10 Areas of Focus for Survival

1. Prioritize Your Mental and Physical Health: Leaders must prioritize their mental health and physical health to stay resilient. According to the American Psychiatric Association in workplace statistics, employers throughout America lose $44 billion because of insufficient resources for mental health problems. Regular exercise, balanced nutrition, sufficient rest, mindfulness practices, and consultations with mental health professionals can improve stress management and overall mental well-being.

2. Embrace Continuous Learning: With technology rapidly transforming business operations and models, leaders must commit to lifelong learning. Carving out time each day to stay up-to-date with industry trends, emerging technologies, and evolving consumer behavior is no longer a luxury—it’s a necessity. Aside from daily news feeds, Online courses, industry-specific webinars, workshops, and professional networking events are essential resources.

“The important thing is not to stop questioning. Curiosity has its own reason for existing.” —Albert Einstein

3. Cultivate Emotional Intelligence: Emotional intelligence is crucial for effective leadership. It allows executives to perceive, use, and manage their emotions as well as their team members’ emotions. EQ is so effective that the overall success of the business can improve by 37.2% within the first year. Therefore, fostering an environment of empathy, trust, and effective communication directly impacts the bottom line. Regular introspection, mindfulness practices, and emotional intelligence training can enhance these skills.

4. Promote Diversity and Inclusion: A diverse and inclusive work culture promotes innovation and strengthens the company’s reputation. Leaders should strive to create a work environment where employees of all backgrounds feel valued and heard. Training on unconscious bias, implementing fair hiring practices, and promoting diverse voices in decision-making can enhance inclusivity.

5. Foster Innovation and Agility: In a rapidly changing business environment, leaders must foster a culture of innovation and agility within their teams. Encourage creative thinking, be open to new ideas, show vulnerability, and facilitate an environment that sees failures as opportunities for learning.

6. Invest in Employee Well-being: Employee well-being is intrinsically linked to company performance. Executives should promote initiatives for physical health, mental health, and work-life balance. Flexible work schedules, wellness programs, and open dialogues about mental health can contribute to a healthier, more productive workforce.

7. Prioritize Sustainability and Corporate Social Responsibility (CSR): Leaders should incorporate sustainability and CSR into their business strategies. This enhances the company’s global influence and reputation, risk mitigation, attracts elite performers, and appeals to modern consumers and investors who prioritize companies with firm commitments to sustainable practices.

8. Nurture a Robust Network: Building a strong network of trusted peers, mentors, and advisors can provide critical support and guidance. This network can be a breeding ground for synergy and ingenuity as well as a sounding board for ideas, a source of valuable insights, and a form of reassurance during challenging times.

9. Develop Crisis Management Skills and Plan: If we have learned anything over the past few years, being prepared for a crisis of any magnitude is critical. Crises are inevitable in an uncertain business climate. Companies that do not have a crisis management plan run the risk of harming employees, reputation damage, financial loss, and legal issues. Leaders must develop robust crisis management skills, focusing on proactive strategies, effective communication, and recovery plans.

10. Be Proactive on Social Issues: Weave your corporate values and mission around your position on today’s social issues before you are forced to take a position publicly. In other words, take a position on DEI. Take a position on Climate Change. That way, you can refer to your company’s values/mission/policies and not make up a position when under fire. Taking the time to develop policies and positions that align with your values and that your employees can support will save you time and energy in the long run.

The Corporate Ecosystem’s Role

The corporate ecosystem plays a critical role in an executive’s survival. A supportive organizational culture that encourages work-life balance, professional development, and open conversations about mental health creates a more resilient leadership team. Mental health days, flexible work schedules, professional development opportunities, and accessible mental health resources can significantly contribute to maintaining a leader’s mental and emotional health.

Leading a company in 2024 will be a demanding yet rewarding venture. Executives can skillfully navigate their challenges by adopting this comprehensive survival guide—emphasizing continuous learning, emotional intelligence, diversity and inclusion, innovation, employee well-being, sustainability, networking, crisis management, and mental health.

Leadership in the modern corporate world is not just about guiding teams—it’s about setting the right example of balanced success. And to thrive in this ever-evolving landscape, executives must prioritize their company’s progress and personal well-being. If you take these recommendations to heart and give them focus and attention you can not only survive this year but thrive.

Contributing to this article: Mandy Morris and Elizabeth Hocker

The loan-to-value (LTV) ratio is a key metric mortgage lenders use to assess their risk of lending you money. Most lenders use the LTV ratio, credit score, debt-to-income ratio, interest rate, and property value when processing your mortgage application. The loan-to-value ratio affects the amount of down payment the lender requires.

Simply put—the lower your LTV ratio, the better your chance of getting finance approved at a competitive rate.

This article is a complete guide to understanding LTV ratios and how they can help you make wise property investments. You will also find out how to calculate LTV ratios. Additionally, you will get key insights into securing cheaper financing terms.

What Is LTV (Loan-to-Value) Ratio in Real Estate Investing?

The loan-to-value LTV ratio is the difference between the property’s appraised value and the loan amount you want to borrow. The LTV ratio is expressed as a percentage and helps lenders determine your eligibility for a loan. This percentage figure is used for all conventional, home equity, FHA, and car loans.

The LTV compares the mortgage loan amount to the home’s value or equity. In the eyes of lenders, a higher LTV ratio means your risk of default is greater. Therefore, the lender may increase mortgage costs, like the down payment size and interest rates. On the other hand, a lower LTV increases your chances of securing favorable loan terms. Lenders have more confidence that you will make the monthly mortgage payments.

Understanding the Loan-to-Value Ratio

Calculating the LTV ratio is essential to the mortgage loan application process. Lenders use it to determine the terms of buying a property, refinancing an existing home loan, or approving a home equity loan. Lenders view you as a greater risk if you apply for a loan close to the property’s market value.

Money lenders use the loan-to-value ratio to reduce their risk of losing money in case of a default. For example, in the event of a foreclosure, the lender may be unable to sell the home for a price that covers the outstanding mortgage balance.

The three primary factors affecting LTV ratios are the following:

• Appraised property value
• The amount of the down payment
• The sales price

What Is a Good LTV?

The ideal LTV ratio when applying for a mortgage or home equity loan is 80% or lower. Therefore, your down payment would be 20% of the purchase price. When you have a good LTV, you can expect lenders to offer you the lowest interest rate. You can also avoid paying private mortgage insurance—potentially saving thousands of dollars over the loan term.

How to Calculate LTV

It is easy to calculate the LTV ratio by dividing the loan amount by the value of the asset you are borrowing against. For a mortgage, this means dividing the mortgage amount by the property’s value. To get a percentage figure, you multiply the result by 100.

Here is the formula to calculate LTV:

([Total loan amount] ÷ [property’s appraised value]) x 100 = LTV ratio

For example, suppose you plan to invest in a property with an appraised value of $230,000, and you have $60,000 for the down payment. Therefore, the total mortgage amount is $170,000. This means that your LTV ratio would be 74%. Here is the LTV calculation:

$170,000 ÷ $230,000 = 0.74

0.74 x 100 = 74%

By looking at the calculation, you can see that you could lower the borrowing amount and achieve a lower LTV ratio by making a larger down payment.

It’s important to note the difference between the purchase price and appraised property value. Lenders typically assess LTV based on their appraisal. However, your LTV will be based on the appraised value or the purchase price, whichever is the lowest.

How Lenders Use LTV Ratios

The loan-to-value ratio is one metric that lenders use when assessing mortgage loan applications. Other factors that can affect eligibility for a loan include credit scores, DTI, employment history, the value of the property, and the down payment. However, the LTV ratio will greatly impact borrowing costs regarding higher mortgage rates.

Although the ideal LTV is generally 80%, you can secure a mortgage with a higher LTV ratio. However, you will be faced with higher borrowing costs. Higher interest rates and private mortgage insurance are two ways a high LTV ratio can impact the total mortgage amount.

Let’s see how these factors affect the amount you must repay.

• Require private mortgage insurance (PMI): An LTV ratio higher than 80% may mean you must purchase private mortgage insurance. Depending on the product, this can add between 0.5% and 1.0% to the total loan amount annually. However, the payments are typically necessary until the LTV ratio is below 80%.
• Charge higher interest rates: The LTV affects mortgage rates. Lenders typically charge higher interest rates on a primary mortgage with a high LTV ratio. In some cases, this could be a full percentage point higher than a borrower with a lower LTV.

It’s good to note that if you must purchase insurance on your mortgage, you can get closing costs and the cost of PMI added to your mortgage monthly payments.

Depending on other factors, the mortgage lender may use the loan-to-value ratio to decide that you are ineligible for a conventional loan to buy a home. These factors could include your credit history, insufficient income, or a high DTI ratio.

How Lenders Assess LTV and DTI Ratios

Apart from the LTV ratio, your debt-to-income (DTI) ratio is another vital factor lenders use during the home loan application. Lenders must be convinced you can pay your home loan monthly. To do this, they assess your front-end ratio and back-end ratio.

• Front-end ratio: This figure is the portion of your gross monthly income you spend on housing expenses. These include mortgage payments, taxes, homeowners insurance, and other housing-related expenses.
• Back-end ratio: This figure is the percentage of your income to cover all your debt obligations. These can include a car loan, credit card debt, and other debt that shows up on your credit report.

Why LTV Ratio Matters to Real Estate Investors

The LTV ratio is a crucial real estate metric investors must understand. It helps you know when and how to secure affordable financing for savvy real estate investments. However, it also helps you assess the relative strength of your position in the market. Therefore, the LTV ratio can help you make key decisions when buying, selling, or refinancing a property.

For example, understanding the LTV is useful when deciding to sell or refinance a real estate asset. A low LTV ratio clearly signals that the property has a lot of equity. Therefore, you may want to redirect some of that equity into new investments. This means you can come to the table with a higher down payment, thus reducing the LTV ratio for your next loan. 

What is Combined Loan-to-Value (CLTV)?

The combined loan-to-value (CLTV) ratio considers second mortgage loans like home equity lines of credit (HELOCs), home equity loans, and other liens. Therefore, if you are applying for a second loan, you must calculate the combined loan-to-value ratio.

The LTV and the CLTV are based on how much equity is in the home compared to the total amount you want to borrow.

To calculate the combined LTV ratio, you add the current loan balance on your home to the amount you want to borrow. Then you divide the amount by the appraised value of your home. After that, multiply the result by 100 to know the CLTV ratio. 

How To Lower Your LTV

There are two principal ways to lower your loan-to-value (LTV). First, reduce the amount you must borrow. Second, look for a property with a lower appraised value or offer to buy the home for less. This way, you can lock in a lower monthly payment.

Make a larger down payment

The best way to reduce your LTV ratio is to save up for a larger down payment—ideally, at least 20%. This way, you reduce your LTV because you are borrowing less money. Ideally, it would be best to borrow no more than 80% of the home’s appraised value.

Look for a cheaper property

You can lower your LTV by looking for a more affordable property. Because you are borrowing less, your LTV will decrease accordingly, provided you can still make the 20% down payment. You can achieve the best borrowing costs by lowering your borrowing amount and negotiating a better sales price.

Loan-to-Value Rules for Different Mortgage Types

Although 80% may be the standard loan-to-value (LTV) ratio when applying for a conventional loan, the requirements depend on the mortgage program. Here are the loan requirements by loan type.

Conventional mortgages

A typical mortgage requires an LTV ratio of at least 80%. The best mortgage lenders may have additional requirements for mortgage loans with a higher ratio.

Mortgage refinancing loan

Getting the best mortgage rates when refinancing a loan requires an LTV ratio of at least 80%. Therefore, if you are refinancing your mortgage based on your home equity or have multiple loans, you must calculate your combined LTV ratio.

FHA loans

Home loans backed by the Federal Housing Administration have less stringent requirements. A home buyer can typically qualify for an FHA loan with high LTV ratios—sometimes up to 96.5%. However, taking out mortgage insurance on FHA loans is a requirement, regardless of the down payment size.

VA loans

Government-backed mortgages like VA loans don’t require any upfront payment. If the home buyer meets the requirements, they can qualify for a 100% mortgage. Apart from the VA appraisal fee, they must also pay additional costs on this type of loan, like closing costs.

USDA loans

The USDA loan program allows buyers in rural areas to get a home loan without making a down payment. Therefore, the LTV ratio can be as high as 100%.

Fannie Mae and Freddie Mac loans

Government-backed mortgages like Freddie Mac and Fannie Mae allow would-be homeowners to secure a mortgage with an LTV ratio of 97%. However, these loans require mortgage insurance until the LTV ratio drops to 80% or below. Additionally, home buyers must meet credit rating requirements.

LTV Ratio—In Conclusion

The loan-to-value (LTV) ratio is a crucial metric in real estate investing. The figure measures the appraised market value of the home you want to buy compared to the amount you need to borrow. The LTV ratio helps lenders assess your borrowing risk. 

Reducing the LTV ratio as much as possible generally results in lower mortgage costs. With a percentage figure of 80%, lenders can offer better interest rates, waive the need for mortgage insurance, and offer you better borrowing deals.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.