The short answer
Loan-to-value, or LTV, is the amount of a loan divided by the market value of the property securing it, expressed as a percentage. Bank regulators use it to set supervisory lending ceilings, lenders use it to size loans, and DST offering documents disclose it so you can see how much debt arrives with each dollar of equity. In an exchange it is the quickest check of whether the replacement carries enough debt to match the loan you are paying off.
At a glance
| Formula | Loan amount divided by the market value of the property securing it |
|---|---|
| Measured | At origination, counting all senior liens |
| Supervisory ceiling, improved commercial | 85% under the interagency real estate lending guidelines |
| Debt per dollar of equity | LTV divided by one minus LTV |
The definition comes from the federal real estate lending guidelines.
The OCC's Commercial Real Estate Lending handbook defines the loan-to-value ratio as the percentage derived at origination by dividing an extension of credit by the total market value of the property securing it, plus any acceptable non-real estate collateral. All senior liens on the property are included. Loan-to-cost is a different ratio that divides the loan by total cost, including construction costs. Because the ratio is measured at origination, the ratio of the current balance to current value when you sell can be quite different once the loan has amortized and the value has moved.
The interagency guidelines set supervisory LTV limits that a bank's own limits should not exceed: 65% for raw land, 75% for land development, 80% for commercial and multifamily construction, 85% for one- to four-family construction, 85% for improved commercial and multifamily property, and 90% for owner-occupied one- to four-family and home equity loans, with conditions. The handbook stresses that these limits are not a safe harbor and that each loan's LTV should reflect its own risks.
A hypothetical: using LTV to plan the replacement debt.
Hypothetical figures, ignoring closing costs: you sell for $2,000,000 and pay off a $1,000,000 loan, so you shed $1,000,000 of debt and $1,000,000 of equity goes to your intermediary. A replacement bought at 50% LTV with that equity is a $2,000,000 property carrying $1,000,000 of debt, which matches what you shed.
Each dollar of equity brings LTV divided by one minus LTV in debt. At 50% that is one dollar of debt per dollar of equity; at 40% it is about 67 cents, so $1,000,000 of equity carries about $667,000 of debt. The $333,000 shortfall is debt relief that must be covered with your own cash or recognized, under the netting rule in Reg. section 1.1031(b)-1(c). Run your own numbers with your CPA.
It bites when the replacement is less leveraged than what you sold.
Sellers moving from a leveraged property into a free-and-clear or lightly leveraged one are where LTV matters most. The choices are laid out in replace the mortgage or add cash, and the formula as it applies to a trust interest is in does a DST loan count as replacement debt.
A DST's LTV is fixed when the offering is structured. Under Rev. Rul. 2004-86 the trustee may not renegotiate or refinance the acquisition debt, so if values fall the LTV rises and there is no refinancing lever. The disclosure sits in the private placement memorandum, discussed in reading a DST PPM and Form D, and the risk side in DST leverage and interest rate risk.
Related questions
Is LTV measured on the purchase price or an appraisal?
The regulatory definition uses the market value of the property at origination. Lenders state in their commitment which value they use, so check the term sheet if the purchase price and appraisal differ.
What LTV do DST offerings use?
It varies by offering and is disclosed in each private placement memorandum. No primary source sets a typical range, so compare the stated figure for each offering against the debt you need to replace.
Does a lower LTV on the replacement create boot?
It can. If the debt you take on is less than the debt you shed, the difference is treated as money received unless you add cash; see liabilities assumed or taken subject to.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.