The formula for calculating debt service coverage ratio is very straightforward. The DSCR for real estate is calculated by dividing the annual net operating income of the property (NOI) by the annual debt payment.
| Matt Warren <matthewtwarren3@gmail.com> | 2:31 PM (0 minutes ago) |  | |
| to Carl, bcc: Meagan |
Carl, Thanks for sending those additional comps. After lengthy conversations with our banker and Meagan, here is where we are with 1502 Cleveland.
Anticipated Rental Income: $900 per unit x 2 = $1800Management Fee of 8% => -$144Insurance $955/12 => -$80Taxes $2,296/12 => -$191Lawn Care $50/mth = -$50
Bank needs to be at a minimum 1.25% Debt Service Coverage Ratio. The DSCR for real estate is calculated by dividing the annual net operating income of the property by the annual debt payment. I am showing numbers below on a monthly basis for simplicity.
I cannot pay a dollar more than $180,000 max. With the work that needs to be done to bring it up to where I can even get $900 per month, I want to start negotiations at $175,000 before having an inspection. The numbers barely work at $175,000 especially considering one side is vacant and the other side only brings in $640 of income.
Monthly debt service on a $175,000 sale price comes to $1078 per month.
Net operating income of:
$1800 Gross Rental Income -$144 Management -$80 Insurance -$191 Taxes -$50 Lawn Care___________ $1335 Net Operating Income
$1,335/$1,078 = 1.238% DSCR
Long story short, we need to be at $175,000 considering the condition and current rent rates.
If she pushes back, we could possibly get closer to her asking price if she is willing to give me terms. If she is willing to finance some or most of the deal, it will certainly help the situation with the bank. I will make sure both agents involved are taken care of with full commissions paid at closing, if that is an option. Call me when you get a second to talk. We are still planning to do the inspection tomorrow, just wanted you to know where we are at currently.
Thanks,Matt
