When we got the first draft we didn’t know if that is a good proposal or not. In our eyes, a good proposal will be the one that will provide the highest loan within the Bank parameters and will bring the best ROI. So what do we mean by that? Let me give you an example:
If the offer from the lender came at $1.6M but according to the bank’s guidelines they can, in fact, lend $1.8M on this property with all the property specific parameters. In this case, we would say that the loan is not good enough and we could probably get more from the Bank. But how do we know what are the bank’s limits?
The answer is very simple – we ask the question…
Every bank will have their own processes and guidelines. For some, the LTV will be 80% with DSCR of 1.25 while for others it will be 75% with 1.20 DSCR. It could also change within the same bank in different deals depending on the risk of this deal in the bank’s eyes. Our first offer from the bank came with the following numbers:
- Total Project cost (including purchase price, rehab, loan fees, first-year interest, first-year taxes and insurance escrow) – $2,402,170
Loan – $1,825,000
- Required cash – $577,170 (out of that $197,000 is for the first year interest payment, taxes and insurance escrow).
In the bank calculations, they took into account rents of $750 per unit per month and 10% vacancy. The yearly income came to $388,800.
The expenses they have calculated came to $227,030 (58%)!! NOI = $161,770
In our case we got 2 separate loans from the bank, one was the main loan and the other one was an energy efficiency loan. The DSCR of the main loan was 1.25 Main loan LTV – 71.6%
If you are dizzy with all those numbers, that’s ok, you are not alone on this one. We will be happy to help you analyze your deal. Just drop us a line or call us.
In the next post, we will talk about analyzing and optimizing the offer from the bank.