When a sponsor goes out and buys a piece of real estate they will be financing it with two key components of capital.
One is going to be debt that they’re going to get from the bank and the other is going to be equity that they’re going to getting from investors.
On each Small Change investment project you will see how much the sponsor is seeking to crowdfund and how much they are borrowing from other sources.
These days, debt, when it is placed on a property, is never going to be 100% of what the sponsor needs.
If it were, then they wouldn’t need equity. One of the ways that banks determine how much they’re going to lend to a sponsor is by using one of two ratios, loan to cost or loan to value.
In this video by Adam Gower of Gower Crowd, he’ll help you discover what is the difference between the two ratios and how banks use them.