Debt Coverage Ratio, Cap Rate & Cash on Cash Return

[James Syed]

Hi BP,

When analyzing an investment property 3 numbers are extremely important along with others;

1. Debt Coverage Ratio

2. Cap Rate

3. Cash on Cash Return

Most lenders look for DCR of 1.20 or better, most investors want at least 8% cap rate or better and a minimum of 10% cash on cash return (in majority of cases).

Keeping investor interest in mind,

Would it be a better deal, if investors gets a minimum of 1.5 DCR and say like 6-7% cap rate. I had situation where my DCR was 1.5 however my cap rate was around 6% only which I thought was too low.

I'd appreciate any suggestions / ideas on this matter.