If you remember only two numbers when assessing a private mortgage, make them position and loan-to-value (LTV). Together they describe how protected your capital is.
Loan to Value
LTV is the total debt against a property divided by its value. A first mortgage of $650,000 against a $1,000,000 property is 65% LTV meaning the value would need to fall by more than a third before the loan principal is exposed. Lower LTV means a bigger cushion. It is the most direct measure of how much can go wrong before you lose money.
Position decides who gets paid first
In a forced sale, proceeds repay the first mortgage before the second. A first at 65% is well-protected. A second that sits behind a large first say a first at 60% and your second taking the total to 80% has both higher leverage and a worse line in the repayment queue. That can be a perfectly good loan; it just has to pay for the added risk.
Value is an input, not a fact
LTV is only as good as the value beneath it. Conservative underwriting means relying on a credible, current appraisal (and being skeptical of optimistic ones), considering how saleable the property actually is, and stress-testing what a slower market would do to both value and time-to-sale.
Other layers of protection
Additional security (other property pledged), personal covenants or guarantees, and a clear, realistic exit (sale, refinance, or take-out) all strengthen a position beyond the headline LTV.
Conservative underwriting isn’t about chasing the lowest LTV on every deal it’s about making sure the return you’re paid genuinely matches the risk you’re taking, with a margin of safety you’d be comfortable defending if the market turned.
AAREA’s role
We underwrite each opportunity on its own merits position, LTV, value, and exit and present it to you with the risks stated plainly. Every opportunity we present is underwritten on position, LTV, value, and exit, with the risks stated plainly rather than glossed over. Tell us your maximum LTV and the rest of your criteria, and we’ll respect them