Question

Apton Apartments has a gross income of $100,000 a year and a net operating income of...

Apton Apartments has a gross income of $100,000 a year and a net operating income of $60,000. Barnes Gardens has the same net operating income as Apton Apartments but has a gross income of $120,000. The capitalization rate is 6% for Apton Apartments and 5% for Barnes Gardens.

Both complexes have the same number of units. (for purposes of the following calculations we are assuming 0% vacancy rates and $0 in capital reserves).

  1. Assuming a lender will lend based on both LTV and DSCR, and DSCR is the restricting factor for the maximum loan size, which complex is able to get the larger loan?
    1. Apton Apartments
    2. Barnes Gardens
    3. Both the same

Homework Answers

Answer #1

Both apartment wouldd have same DSCR(debt service coverage ratio),that is cash flow available to pay current debt obligations,since net operating income of both apartment are same.

Further,if we consider LTV,then value of Barsen garden is higher than the Apton Apartments.

Thus,if the lender lend based on both LTV and DSCR,then Barsen garden will be able to get the larger loan as it has higher LTV and same DSCR.Accordingly correct answer is Option (b).

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