How would a broker know my DSCR if they dont know my financing?

Question

I'm wholesaling apartment buildings and connecting with brokers

If i tell them that my criteria is 10% Cash on Cash return and at least 1.4 debt service, how would they be able to know without knowing my financing?

Account Closed · Answer

@Seth Williams advice is on point from my experience, they'll just assume you're doing 80/20 or 75/25 to maximize cashflow, DSCR and CCR are inversely related, but I don't think it's an absolute inverse relationship.

@Jim Growfer I've had bad luck telling broker's specific metrics such as "I want an 8% cap rate" or "10% cash on cash return" because they'll just fudge their vacancy or maintenance or some other line item to compute those terms.

So instead, I tell them property specifics: pitched roof, 1980s or newer, separate entrances, separate utilities - things that will likely paint a picture to be a good property to own and then I simply analyze based off of the T12 (with rent roll to corroborate their story) and offer accordingly.

Account Closed · Answer

Interesting question - I run into this trouble too.. what you need broker's to send you is legitimate Trailing 12's (T12s) and a Rent Roll and you need to know your market's cap rate. I also have that same DSCR requirement but I don't bother telling broker's.. just my lender.

Greg Dickerson · Answer

It's all about CAP rate. Thats's how properties are valued and marketed in some cases. That' really what you should be looking at Cash on Cash and IRR will all be predicated on the the cash down and loan terms. You need to model financials on your loan metrics, down payment and investor requirements and then work backwards into a CAP rate. If you're just planning to wholesale all you need is a good CAP rate and a motivated seller.

Jay Hinrichs · Answer

I dont know about you guys.. but brokers  and me being one paint blue sky pictures.. its up to the buyers to do their own due diligence..

I think the greater issue is sellers and brokers of MF are not the same as trying to wholesale SFR's  .. not sure how you do that without some POF and ability to execute.. I mean the commerical brokers i know would never spend two minutes with someone that has not proofed up.

Jim Growfer · Answer

Account Closed

So what should my criteria with my broker be?

Seth Williams · Answer

@Jim Growfer I could still model the debt service off of what most conventional banks would do, or this rate. Literally there needs to be enough available revenue to cover the debt service, hence the term. Assuming 80 % LTV OR 75 LTV, I could run these numbers. If you aren’t using those LTVS You should specificy that to the broker.

Jim Growfer · Answer

@Seth Williams

sorry i think im misunderstanding something.  If im looking to purchase a big apartment building and tell my broker that im looking for a building thatll bring in 10% CoC and a 1.4% DSCR.... How would they be able to find those two things that meet my criteria, if they dont know my financing.

Wouldnt they need to know what im using for a Debt Service and down payment in order to calculate the CoC and DSCR?

Seth Williams · Answer

I’m not sure I understand the question, but regardless with proposed rents or income, and an asking price I can run estimates and tell you the dscr directionally. But try and be more specific so we can help you out.

How would a broker know my DSCR if they dont know my financing?

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