Debt Service Ratio 5/28/18
Debt Service Coverage Ratio* (DSCR)* is the amount of cash flow available to meet annual interest and principal payments on debt.
=Net Operating Income/Debt Service
*Annual Debt Service* $10,000
*Debt Service Ratio*= $15,000/$10,000=1.5
This number is not very important for residential Hard Money Lenders and Private Residential Lenders. However, it is a very important number to Commercial Real Estate Lenders and Banks. The Debt coverage ratio measures the project/company ability to maintain its current debt. That is why the higher the number the better.
Before you start your real estate rehab it’s important to get a game plan on exactly what and how you will rehab your real estate investment property. Running MLS Comps, studying the sold and active comps, are critical steps in determining the rehab needed for your real estate investment. Proper planning prevents poor performance.
Property Comparable should not cross any major streets or highways:
When flipping a property it’s important not to use properties that sold in an area that is across a major highway simply because the number one factor in determining real estate value is location, location, location. A property across a major street is in a different location and might be in a better developed area, zoned to a better school district or even have easier access to the highway.