Question

Total rent revenue = GPR – Vacancy – Loss

                               = 1,000,000 – 50,000 – 10,000

                               = $940,000

NOI = Total rent revenue – Total expenses

        = 940,000 – (300,000 + 175,000)

        = 940,000 – 475,000

        = $465,000 (Answer)

Your friend is a mortgage broker with a Fannie License.  Hehas indicated that Fannie will give you a loan the lesser of “80%” or 1.25 DSCR constrained. The interest rate for the Fannie loan will be 5% and have a 30 year amortization. Based on that, what is the amount of the loan you think you can get from Fannie. Show your work/methodology for sizing both of these loans.

Answer 1

Net Operating Income(NOI)=$465,000

Debt Service Coverage Ratio (DSCR)=1.25

Maximum debt service amount allowed =NOI/1.25=465000/1.25=$372,000

Hence ,for getting maximum amount of loan, the annual repayment will be =$372,000

Annual Payment=$372,000

Number of years=30

Interest rate=5%

Using excel PV function with Rate=5%, Nper=30 and Pmt=-372,000

The loan amount=$5,718,552

Maximum Loan amount =80% of Property Value

The maximum Property Value=5718552/0.8=$7,148,190

Loan amount =0.8*7148190=$5,718,552

This alsomeets the criteria of 1.25 DSCR