Debt Service Coverage Ratio

[Johnny Kang]

I'm in the process of buying an apartment complex in PA with my partners (I'm looking at a 5 unit & 10 unit). The DSCR on buildings I'm looking at are below what most lenders will lend on (it ranges between .9 ~ 1), but once it's repositioned it will jump to 1.3 ~ 2.8. My question was, will commercial lenders lend, even though on the day of the purchase, the DSCR is below their guideline, knowing that DSCR will go up once it's been repositioned?

[Chris L.]

Most of the time you will need a bridge loan to purchase and re-position the asset. Then once the property is stabilized with new rent roll you can move towards refinancing into traditional options. Most long term lenders are pretty strict on the DSCR after all that is how they count on getting paid and work off the properties history not potential rent. Us hard money lenders are the only ones dumb enough to do that. lol. I would love the opportunity to discuss the project and possibly find some solutions to your dilemma. Cheers!