Yes, If they’re having a seasoning of the loan meaning enough time for you to show history of good payments. How long ago do you get this loan and for how much?
Will the bank do a dscr loan on a package of residential rental properties. Let’s say you have an opportunity to purchase 30 rent houses as a package deal, if your ratio meets the minimum 1.25 will the bank give you a dscr loan?
This is not gonna work as an SBA loan because SBA Lenders do not lend on residential properties. If you’re thinking about a traditional bank who may be able to handle a portfolio, I can’t speak to that. That’s a very unusual situation. Right now the service coverage ratios are going up because of interest rates and the threat of the economy.
Do banks and financing companies care about projected future DSCR or just current DSCR. For instance, a business wants to finance a large piece of machinery that is projected to double the NOI. Is the current DSCR the only thing looked at?
That’s a great question. Most of the best I’ve ever worked with will have a covenant in the loan provisions to look at the debt service coverage ratio of these once a year during the term of the loan. So once an underwriting and once every year during the term of the loan.
Where did you get the 1.25 % number from Can we understand more about if we should always use that number universally on all back of napkin analysis ? Why not 1.55 ? Or 1.65 ?
Hi Victor, The 1.25 is the bare minimum that the average bank will be comfortable with. Although some banks may be ok with lower, say 1.20, The 1.25 is a safe bet. Anything over 1.25 as a bonus. The number comes from taking the net income of the business divided by the debt service which includes principal and interest payment on an annualized basis. Let me know if that makes sense.
@@LeoLandaverde What’s the average amount investors aim for ? I’m sure 20% may be a tight squeeze just because anything can pop up in the form of an additional expense or an unnexpected occurrence What do you feel comfortable with ?
Hi Victor, I am not sure if I understand your question. Investors aim for the highest possible. The debt service coverage ratio is a cash flow tool used by investors in banks I like to calculate how much profit is after you pay the debt service. It really depends on the acid, if it is stable real estate assets with stable and steady cash flow I guess you’ll be fine of 1.25. Hope that answers your question.
Your video calculation says APR but your result keeps coming up as if you are using APY. When I use an APR calculation ($1.2M at 7% for 25 years) I get a monthly result of $8481.35 instead of your $8317.00. Did I make a mistake?
Hi C.J., good catch. I recalculated and came up with the same number you did. Not sure what happened when I was preparing the video. This is what I use to calculate amortizations. Are you in finance? financial-calculators.com/amortization-schedule
@@LeoLandaverde thank you for your reply. Yes, I've been in finance as a Commercial Lender for a couple decades but now I use my skill set as a Business Advisor for the SBDC. I enjoy your videos. Very fundamental and easy to understand.
Hi C.J., thank you very much! I used be a workshop leader and mentor for SCORE in Fresno, CA and I am very familiar with SBDC. I am glad my videos are useful. Feel free to send links to my videos to anyone you think could benefit from them.
How do you calculate this please If the value of the property is USD 1 Million, Value allocated to the building is 90%, 10% to land, Loan- to-value is 80%, Interest Rate is 8%, and loan duration is 30 years, Calculate the following A. Debt Service, Equity Dividend, Equity Dividend Rate, and Debt Coverage Ratio
Hi Nelson, In order to calculate the debt service coverage ratio, we need to know what the net income is either for the current year or prior year. The formula: net income / debt service = DSCR
Click on the link below to download my CASH FLOW CALCULATOR for BUSINESS PURCHASE worksheet:
leo97eda0.clickfunnels.com/optin1657836675771
Thx for clarifying what DSCR is
Glad I can help! Thanks for tuning in.
I've always wondered how to do this! This is super helpful! Thanks so much for breaking it all down for us! :)
Glad it was helpful!
This is really a must know for anyone dealing with banks. Thanks a billion.
Felipe, thank you! Glad you think so!!!
I have no head for numbers, but this was very easy to understand.
So good to hear! Glad I was able to make it simple enough.
I learn so much with your videos!! Thanks for the attention to detail
It is my absolute pleasure. Thanks for watching!!
I didn’t know that’s how banks determine in paying debt payments. Really important stuff for business. Thanks for this detailed explanation.
Thanks so much for watching. I’m glad I was able to make sense of it for you.
@LeoLandaverde tons of value in this video - love the simplicity!! 💥
I appreciate that! Means a lot from someone with a great channel, like yourself!
It's always important to know your numbers. I've been slipping but have set an intention to learn more about this.
Boom! Glad it was helpful!
Can you refinance to a conventional loan from a dscr and when?
Yes, If they’re having a seasoning of the loan meaning enough time for you to show history of good payments. How long ago do you get this loan and for how much?
Appreciate the simple way you share your knowledge. Thank you!
Thank you! Glad you think so.
Thanks for sharing this!
Awesome. Thank you so much for watching!
do you have any videos on calculating apr?
Hi Philip, thank you for the suggestion. I will add it to the list of potential topics
Very helpful info leo.:)
Carol, glad you think so!
Does that include owners salary?
Hi T.C., Yes, it does. The same principle applies whether you’re applying for a working capital loan or acquiring a business.
Nice breakdown Leo, very informative.
Appreciate it!
Great explanation. Very helpful break down
Glad you think so!
Thank you for sharing your knowledge.
Lassana, Thank you so much for watching! I hope you found information useful
This is super helpful! Thanks!
Thank You! Glad you think so!!
Will the bank do a dscr loan on a package of residential rental properties. Let’s say you have an opportunity to purchase 30 rent houses as a package deal, if your ratio meets the minimum 1.25 will the bank give you a dscr loan?
This is not gonna work as an SBA loan because SBA Lenders do not lend on residential properties. If you’re thinking about a traditional bank who may be able to handle a portfolio, I can’t speak to that. That’s a very unusual situation. Right now the service coverage ratios are going up because of interest rates and the threat of the economy.
@@LeoLandaverde thank you. I appreciate you for responding back.
Absolutely. Thank you so much for watching my videos and glad to have you as a subscriber
Do banks and financing companies care about projected future DSCR or just current DSCR. For instance, a business wants to finance a large piece of machinery that is projected to double the NOI. Is the current DSCR the only thing looked at?
That’s a great question. Most of the best I’ve ever worked with will have a covenant in the loan provisions to look at the debt service coverage ratio of these once a year during the term of the loan. So once an underwriting and once every year during the term of the loan.
so helpful!! thankyou! 🙏🏼
Glad it was helpful!
Thanks for watching this video! Please comment below and let me know if you have dealt with DSCR calculations when dealing with banks and/or leners
Is dscr good for 2plex business?
Hi there, YES. DSCR applies to duplexes--really any type of real estate investment where there is debt service. Where are you looking to invest?
@@LeoLandaverde thank you so much im investing in 4plex
Excellent. Congrats!
Where did you get the 1.25 % number from
Can we understand more about if we should always use that number universally on all back of napkin analysis ?
Why not 1.55 ?
Or 1.65 ?
Hi Victor, The 1.25 is the bare minimum that the average bank will be comfortable with. Although some banks may be ok with lower, say 1.20, The 1.25 is a safe bet. Anything over 1.25 as a bonus. The number comes from taking the net income of the business divided by the debt service which includes principal and interest payment on an annualized basis. Let me know if that makes sense.
@@LeoLandaverde
What’s the average amount investors aim for ?
I’m sure 20% may be a tight squeeze just because anything can pop up in the form of an additional expense or an unnexpected occurrence
What do you feel comfortable with ?
Hi Victor, I am not sure if I understand your question. Investors aim for the highest possible. The debt service coverage ratio is a cash flow tool used by investors in banks I like to calculate how much profit is after you pay the debt service. It really depends on the acid, if it is stable real estate assets with stable and steady cash flow I guess you’ll be fine of 1.25. Hope that answers your question.
Most conservative investors would aim for 1.35 ?
35% after debt service give us cash flow
Sounds like you’re a sophisticated investor yourself. What parts of the country do you investing?
Your video calculation says APR but your result keeps coming up as if you are using APY. When I use an APR calculation ($1.2M at 7% for 25 years) I get a monthly result of $8481.35 instead of your $8317.00. Did I make a mistake?
Hi C.J., good catch. I recalculated and came up with the same number you did. Not sure what happened when I was preparing the video. This is what I use to calculate amortizations. Are you in finance? financial-calculators.com/amortization-schedule
@@LeoLandaverde thank you for your reply. Yes, I've been in finance as a Commercial Lender for a couple decades but now I use my skill set as a Business Advisor for the SBDC. I enjoy your videos. Very fundamental and easy to understand.
Hi C.J., thank you very much! I used be a workshop leader and mentor for SCORE in Fresno, CA and I am very familiar with SBDC. I am glad my videos are useful. Feel free to send links to my videos to anyone you think could benefit from them.
How do you calculate this please
If the value of the property is USD 1 Million, Value allocated to the building is 90%, 10% to land, Loan- to-value is 80%, Interest Rate is 8%, and loan duration is 30 years, Calculate the following
A. Debt Service, Equity Dividend, Equity Dividend Rate, and Debt Coverage Ratio
Hi Nelson, In order to calculate the debt service coverage ratio, we need to know what the net income is either for the current year or prior year. The formula: net income / debt service = DSCR