Commerical properties risky for buyers, lenders
Jessica White/DC Columnist
Issue date: 6/29/08 Section: Business
Lenders generally look for a DSCR of 1.2 to 1.3. What does that mean? That means the building has to carry itself with enough income for the new buyer to be able to handle any vacancies if a tenant moves out. If the building does not "cash-flow" then the lender will look at the personal income of the buyer to determine if the buy has enough extra income to carry the property.
To calculate the property's DSCR, you have to know a couple very basic things, namely, the yearly income and the yearly operating expenses. Let's assume you find a property that makes $100,000 annually. If the operating expenses are $40,000, then you net $60,000 per year off the building. Divide $60,000 by twelve to get your monthly income of $5,000. If the lender requires a DSCR of 1.2, divide $5,000 by 1.2 (which equals $4,166.70) and your monthly principle and interest payment for your mortgage cannot go above that amount.
Taxes and insurance are considered operating expenses, so this figure relates only to your principle and interest payment for your mortgage. What is a good interest rate? A good interest rate is one that makes that property work. Best of luck,
Jessica White, also known as "Ms. Mortgage Maven," is a senior loan officer for a national bank with a branch in Fort Washington, MD. Call her with your questions 202-607-4449, visit her online at www.msmortgagemaven.com, or email her at Jessica@msmortgagemaven.com and you may get your question answered in this column.
To calculate the property's DSCR, you have to know a couple very basic things, namely, the yearly income and the yearly operating expenses. Let's assume you find a property that makes $100,000 annually. If the operating expenses are $40,000, then you net $60,000 per year off the building. Divide $60,000 by twelve to get your monthly income of $5,000. If the lender requires a DSCR of 1.2, divide $5,000 by 1.2 (which equals $4,166.70) and your monthly principle and interest payment for your mortgage cannot go above that amount.
Taxes and insurance are considered operating expenses, so this figure relates only to your principle and interest payment for your mortgage. What is a good interest rate? A good interest rate is one that makes that property work. Best of luck,
Jessica White, also known as "Ms. Mortgage Maven," is a senior loan officer for a national bank with a branch in Fort Washington, MD. Call her with your questions 202-607-4449, visit her online at www.msmortgagemaven.com, or email her at Jessica@msmortgagemaven.com and you may get your question answered in this column.
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