Hey Reader!

Today, we are shifting focus from LTV to ITV.

While LTV tells you how much risk the borrower carries, ITV reveals how secure your position is as the note investor.

Understanding this distinction could change the way you look at every deal. Let’s dive in.

Notes Concept🧠

Investment to Value (ITV) is a percentage that measures the likelihood you’ll recover your investment if the borrower defaults. Important metric right?

ITV tells you what slice of the property your investment represents.

Unlike LTV, which is based on the amount borrowed by the payor, ITV is calculated using the actual amount you invest.

When buying performing notes, the goal is for your ITV to be lower than the LTV.

The borrower has been paying down their balance, and you're seeking to purchase at a discount to mitigate your investment risk and for the seller to receive a lump sum of cash today, versus waiting years to receive all of their payments.

When you find that gap, that's your built-in protection. But it's not always the case. Some notes are priced closer to the balance, and that's where strong underwriting matters most.

Real World Experience💰

Let’s bring this to life with an example. To keep things simple, we’ll use a property valued at $100,000.

The borrower has loans totaling $60,000, which gives them an LTV of 60%.

As the investor, you purchase the note for $50,000, which means your ITV is 50%.

Let's say the borrower defaults. You foreclose, take the property back, and list it for sale. In most cases you can move it for around $80,000 depending on the market and timeline.

You get your $50,000 back plus $30,000 to spare. That cushion is your ITV doing exactly what it's supposed to do. And foreclosure isn't your only option. You can modify the loan, take a deed in lieu, or sell the note to another investor. The collateral gives you options.

Mindset Shift 🔄

Fix and flip is a great strategy but at the end of the day, it's a job.

You stop working, the income stops.

Notes are different.

When you invest in a note, you become the bank. No contractors. No rehab timelines.

Your income is tied to the loan, not your labor. Let's look at some of the differences.

Both put money in your pocket. Only one keeps paying you whether you show up or not.

To your success,

Sierra Davis

P.S. Fix and flip is active income disguised as investing. You're trading time for money the same way a job works, just with more risk. I've partnered with a financial education company that helps families build a real structure around their money so it works for them long term, not the other way around. Book a free strategy session here: Meet with a Wealth Coach​

This is for educational and informational purposes only. Nothing contained here constitutes financial, legal, investment, or tax advice. All investing involves risk, including the possible loss of principal. Individual results will vary. Please consult a licensed financial advisor, attorney, or tax professional before making any investment decisions. Some links in this email may be affiliate links. If you sign up through my link, I may receive a commission at no additional cost to you.