What is the minimum debt service coverage you should accept?

In Buying Property - Asked by William P. - Feb 10, 2011
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Answer(s)

Steve H.
Broker/Agent
Cocoa Beach, FL

1.25 is the standard acceptable to most lenders depending on property type.

Feb 10, 2011
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Chris F.
Broker/Agent
Salem, OR

I would think it will depend on the type of property and the risk associated with it. You should ask who the tenants are, and what the likelyhood is that they will continue to be able to make those payments

Feb 10, 2011
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Rob B.
Chandler, AZ

William.... In today's lending economy, debt service coverage is just one of the measurements for a lender. Yes, 1.25 is a likely debt service requirement. However, the lending institutions are also applying stress tests that include other factors as well as measuring debt service coverage. Suffice to say that most commercial transactions can require anywhere from 35% on the low side to 50+% as a down payment today. SBA loans for owner users are still a very good way to go. Let's all hope that the days of decent leverage will return to the commercial field, as that is what makes the risk of owning a commercial property worthwhile. Also, I am a believer that 6%+ interest rates can be tolerated in commercial transactions, in a normal, US economy that encourages capital investment. Good luck William.... Rob Baird, CA RE License #544165 (One of the oldest, active licenses in CA) 951 515-5855 Email: rob@capratecommercial.com

Feb 10, 2011
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Rob M.
Lender/Mortgage Broker
Houston, TX

Very well said Mr. Baird and true.

Feb 10, 2011
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Justin W.
Broker/Agent
Orlando, FL

1.25-1.3 is what my captial guys like.....hope this helps

Feb 10, 2011
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Jeff R.
Lender/Mortgage Broker
Birmingham, MI

For owner user 1.25. 1.35 if special purpose. On investment, non multifamily 1.4.

Feb 13, 2011
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akali d.
Lender/Mortgage Broker
Sunny Isles Beach, FL

Hello William. Obviously the higher the DSCR, the better. On the financing side, my group, offers Bridge Financing up to 90% LTV with an "as-is" DSCR of only 1.05x. So, it depends on the lender or Fund that is offering the financing. If you are a buyer, you may find a property with a low DSCR but has the potential to be much higher once the income is stabilized. I would be happy to speak with you further on this subject or email our guidelines to you. Akali (954) 496-5351. akali@royalcapitalgroup.com

Apr 20, 2011
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