Question

You plan to purchase a property which has an expected NOI of $200,000. You plan to borrow $1,500,000 at a 5% annual rate for 30 years. What is the DCR for this investment?

If the property in #9 is being purchased at an 8% cap rate, assuming the same loan information what is the LTV for this purchase?

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Answer 1

DCR = NOI / Loan payments

Loan payment constitutes both, Principal as well as interest

Loan amount = 1,500,000, Rate = 5%, Period = 30 years.

Present value factor as per annuity table for 5%, 30 years = 15.3725 (As per annuity table)

Therefore annual payment for the loan would be = 1,500,000 / 15.3725 = 97,576 (Principal + Interest)

Thus, DCR = 200,000/97,576 = 2.05

Cap rate = NOI / Vaue of property

Thius 8% = 200,000 / Value

Value = 2,500,000

LTV = Loan amount / Value = 1,500,000 / 2,500,000 = 60%