When investing and negotiating multi-residential investment properties, you will hear the term Debt Service Coverage Ratio or DSCR from banks and lenders. Ideally they will be looking for a ratio over 1, which means that the property is generating enough income to cover all debt obligations.
In general, it is calculated by:
Lately we have been running across lenders looking for a 1.2 ratio or above to protect themselves with a little padding. This means they would like to see debt coverage of 120% or more if possible. Therfore, if you are planning on investing in multi-residential investment properties get ready to pony up the cash to cover your debts and then some! For more information on financial analysis of investment properties feel free to contact me directly!
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