Just a quick note and right to the point. There are many misinterpretations as to how a bank will evaluate collateral. The following is the calculation that most lenders apply to determine Equity in a piece of property.
Step One - Take your Best Opinion of Value, hopefully what a professional says the property is worth, sometimes called a BOV, or a Broker Opinion of Value.
Step Two - Discount that value by the amount of at least 20%, because most lender will only allow 80% value to the real estate collateral.
Step Three - Now subtract any and all liens / debts against that property, including any other liens that the property has been pledged to support.
The remaining amount is the collateral value that a bank will apply as security for the loan.
NOTE - Some lenders apply even more stringent calculations.
For more on investment property and collateral value visit loanforbiz.com .
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