Commercial Construction Loans

Commercial and Apartment Construction Loans

"Debt Service Coverage Ratio"

Will the Property Be Able to Carry the Payments?

Commercial construction lenders - over 500 of them - await your application for a multifamily or apartment construction loan, a commercial construction loan, a condo or residential subdivision construction loan, or a land development loan. To apply to 400 banks and 100 hard money construction lenders simply click here.

Debt service is just a fancy term for your mortgage payments. We are just talking about principal and interest here, not taxes, insurance, or other impounds. Just remember debt service means your annual mortgage payments.

The net operating income of the property is just the income left over after operating expenses - like taxes, insurance, repairs, and management - and after setting a little aside every year to cover vacancy losses, collection losses, and replacements, like replacing roof or heater.

So will the net operating income property be able to cover the payments? Will the property just barely be able to cover the payments or will there be plenty of net operating income left over?

To compute the debt service coverage ratio simply divide the annual net operating income by the annual debt service (mortgage payments).

If the answer is less than 1.0, you are in big trouble. The property doesn't generate enough income to make the payments. Yikes!

If the debt service coverage ratio is 1.0, you are at break even cash flow. That's not enough for most lenders. Most lenders want a cushion. The net operating income has to be sizably larger than the proposed debt service.

Most commercial construction lenders will require a debt service coverage ratio of at least 1.25, based on the appraiser's estimate of future rents and expenses.

Fortunately, most proposed properties cash flow very well these days because of record low interest rates. Normally you will run into a loan-to-value ceiling before the debt service coverage ratio requirement becomes a problem.

Commercial construction lenders - over 500 of them - await your application for a multifamily or apartment construction loan, a commercial construction loan, a condo or residential subdivision construction loan, or a land development loan. To apply to 400 banks and 100 hard money construction lenders simply click here.

George Blackburne, III is a real estate attorney, the founder of Blackburne & Brown Mortgage Company, Inc., and the sponsor of the C-Loans.com Commercial Mortgage Lender Database.

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Real estate editors and webmasters: You are authorized to re-print all or any part of this article, as long as you include the above byline and link.









Commercial and Apartment Construction Loans "Debt Service Coverage Ratio" Will the Property Be Able to Carry the Payments? Commercial construction lenders - over 500 of them - await your application for a multifamily or apartment construction loan, a commercial construction loan, a condo or residential subdivision construction loan, or a land development loan. To apply to 400 banks and 100 hard money construction lenders simply click here. Debt service is just a fancy term for your mortgage payments. We are just talking about principal and interest here, not taxes, insurance, or other impounds. Just remember debt service means your annual mortgage payments. The net operating income of the property is just the income left over after operating expenses - like taxes, insurance, repairs, and management - and after setting a little aside every year to cover vacancy losses, collection losses, and replacements, like replacing roof or heater. So will the net operating income property be able to cover the payments? Will the property just barely be able to cover the payments or will there be plenty of net operating income left over? To compute the debt service coverage ratio simply divide the annual net operating income by the annual debt service (mortgage payments). If the answer is less than 1.0, you are in big trouble. The property doesn't generate enough income to make the payments. Yikes! If the debt service coverage ratio is 1.0, you are at break even cash flow. That's not enough for most lenders. Most lenders want a cushion. The net operating income has to be sizably larger than the proposed debt service. Most commercial construction lenders will require a debt service coverage ratio of at least 1.25, based on the appraiser's estimate of future rents and expenses. Fortunately, most proposed properties cash flow very well these days because of record low interest rates. Normally you will run into a loan-to-value ceiling before the debt service coverage ratio requirement becomes a problem. Commercial construction lenders - over 500 of them - await your application for a multifamily or apartment construction loan, a commercial construction loan, a condo or residential subdivision construction loan, or a land development loan. To apply to 400 banks and 100 hard money construction lenders simply click here. George Blackburne, III is a real estate attorney, the founder of Blackburne & Brown Mortgage Company, Inc., and the sponsor of the C-Loans.com Commercial Mortgage Lender Database. http://www.c-loans.com/onlineapp Real estate editors and webmasters: You are authorized to re-print all or any part of this article, as long as you include the above byline and link.				Commercial Construction Loan App Apartment Construction Loan App Mezzanine Loan App Commercial Permanent Loan App Commercial Real Estate Loans Construction Loans Structured Finance Hard Money Loans Bridge Loans Land Loans Acquisition and Development Loans Profit Test Loan-to-Value Ratio Mezzanine Loans Loan-to-Cost Ratio Takeout Loan Debt Service Coverage Ratio Net-Worth-to-Loan-Size Ratio Conduit Loans Earn 10% Interest The Syndication of Large Commercial Construction Loans Commercial Financing and Underwriting Commercial Construction Loans Commercial Financing and Understanding the Hard Costs of a Commercial Construction Project Commercial Construction Loans and Soft Costs Commercial Construction Loans and Land Costs Commercial Construction Loans and Computing the Interest Reserve Commercial Financing and Interviewing the Developer Commercial Financing of Condo Conversions Involve Entitlement Risk Commercial Financing and C.V.'s Land Development Financing and Horizontal Improvements C-Loans Home Debt Yield Ratio


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