Updated over 12 years ago on . Most recent reply
Question RE: Modeling Using a Line of Credit
At risk of admitting to over thinking this scenario, I'm having a difficult time determining the best approach to completing my financial model based on using a line of credit. The LOC is partially secured by a CD at the bank and my questions is how do I determine the down payment amount since it will dictate other outputs in the pro forma? in high level terms the LOC to CD LTV is ~87%. My goal with the modeling is simply to ensure that I make the best use of the limited funds until I can refi and recycle the LOC. Please help my make sense of this issue. Thanks in advance!!
(1) should the down payment per deal be calculated based on the LTV of the LOC to the CD amount? Seems logical based on the CD being "cash" used but doesn't account for the full amortization of the loan amount.
(2) or should the LOC be treated the same as an all cash buy with 100% down? Again this seems logical by capturing the full loan amount but it doesn't take into account the percentage of the CD cash outlay which provides data for metrics like cash on cash return.
(3) or other method??