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The single best way to know how attractive your commercial real estate deal will be to the bank is to know and understand the current debt service coverage ratio. In other words, if you took a snapshot of the current rental income of your subject property, the bank wants to know what the ratio is between that amount vs. the amount that you'll need to be paying them every month. When it comes to these sorts of deals, the bank will always look at the property first and then you second. Even if your credit isn't the greatest and you don't have tons of assets, there are banks that will still finance your acquisition based on the financial strength of the property. This may take some extensive legwork to find depending on your personal financial strength, but it can be done.
To calculate the debt service coverage ratio, you'll want to divide the net operating income (monthly) and divide it by the monthly payment to the bank (monthly). Banks will actually tell you what their target debt service coverage ratio (dscr) is if you ask them, but on the conservative side you'll want to keep it somewhere in the 1.2 to 1.4 range, with 1.4 being the best. With a dscr of 1.4, you'll most likely be successful at getting financing up to 80% loan to value. It has been much more difficult to obtain financing lately, but if you have a dscr of around 1.4 you shouldn't have much of a problem as it makes very good business sense for a bank to finance such a safe investment. This is additionally true if the property is managed by a reputable management company. In some rare cases, arrangements can be made where the management company sends the monthly payment directly to the bank each month, which will add additional attractiveness to the deal for the bank.
There are still some very good deals out there if you know where to look. If you need help finding some good investment deals, please visit our website at http://www.invesco.info and leave your contact information so we can respond to your request.
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IVESCO/Virtual Banking Companies Unlimited, LLC is a Portfolio Selection Agent for an International Private Placement Trading Platform. For additional details on our investment opportunities, please visit our website at [http://www.invesco.info] and register your contact information so we may respond to you promptly.
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