Financing - Posted by David Carter

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Posted by Ed Garcia on December 30, 2000 at 22:24:02:

David,

You sound like you have a good handle on what you are doing. In reference to purchasing commercial properties, financials are definitely a consideration, however most lenders will view the buyer as a secondary source of repayment. They will expect the deal to have a 1.20 to 1.30 debt coverage ratio.

Definition of Debt Coverage Ratio (DCR). From A Glossary Of Common Term Used In Loans And Lending.
A ratio used in underwriting loans for income producing property which is created by
dividing net operating income by total debt service. Ratios of at least 1.10 are generally required with ratios of 1.20 and higher considered the norm.

What we’re saying here is, if all the cost including the loan, ads up to $1000 a month in out go, I want the property to bring in $1200 to $1300 which is 20 to 30% more than is going out. Basically the property is paying for it’s self, plus. Isn’t that why we call it income producing property? LOL

David, I’d like to wish you and your family a Happy New Year,

Ed Garcia

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Financing - Posted by David Carter

Posted by David Carter on December 29, 2000 at 17:52:16:

I recognize the various views about financing. I can argue a case for most, if the case justifies the goal. I believe the goal has to be valid and focused enough to justify financing. I have several income producing properties. I have thought of taking the cash out to buy several more rental homes or properties, possibly commercial rental property. I cannot justify doing it with the financials. I can justify it by the increased effects inflation will have on the additional properties; the increased on prices; the depreciation. I figure my expense to income ratios at 15% for expenses with the remainder of 85% being net income. I maintain the properties in excellent condition. What light do you have to shed on the subject? What would be the advantages of taking out of these properties? Thanks.