Loan to Valuation Ratio (LVR)

October 21, 2014

I would like to address the topic of Loan to Valuation Ratio (LVR). This is an issue that can sometimes be raised by new and existing investors in terms of what level of LVR they are comfortable with. There are a few key points worth making in relation to this.

Firstly, the LVR on Sentinel’s Trusts reflects the fact that we are buying very well in the current market and getting the best possible deal.

Secondly, the major banks operate on LVRs many times higher than those of Sentinel Trusts (which have an average LVR of 60%). Banks typically lend between 80% and 90% for residential properties and this does not seem to be a concern to those with money invested in banks.

Thirdly, Interest Cover Ratio (ICR) is a much more important barometer of an investment risk than LVR. This is the index which should guide investment decisions and Sentinel’s average ICR is 3.03 times, which far exceeds industry standards and banking covenants.

It is always worth remembering that the current ‘aligning of the planets’ presents once in a generation buying opportunities. The current cost of funds is at an all-time low and coincides with distressed vendors and Trusts reaching their maturity. This set of circumstances does not come along very often and investors seeking to profit must capitalise on the opportunities that present themselves.

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