All Forum Posts by: Danny Day

Debt service is not an expense. It goes below NOI. Also make sure that your NOI is at least 30% higher than your debt service. (debt coverage ratio > 1.3)

Trying to wrap my head around this - why is debt service not an expense?

Debt service varies depending on the financing options. The same property may be performing well or not performing at all depending on the debt you put on it. You compare properties based on NOI

Thank you - this make a lot of sense now.

Is there any other key metrics you use or banks use to qualify properties?

Price per door, rent / purchase ratio, etc?

0 Votes

Originally posted by @Mike R.:

Interest discussion on dscr. Personally I don't focus on that number, I let the banks do that. I found that if I found an investment that meets all my criteria and I stick to 25% down the dacr works out such that the banks don't have a problem and I have no less than $200/door net-net income per month. Net-net income is net operating income less P&I, I.e. The amount of $ left after I pay all bills and expenses including the mortgage

From what I am gathering NOI does not equal Net Net income, as you can operate the property without the debt service expense with paying cash - correct?

I am looking at 25% down and have calculated my numbers based on your net net assumption above.

What is the benefit of the NOI calculation without debt service included? Is this something banks underwrite with in lieu of net net, or do they consider both?

0 Votes

Originally posted by @Nick B.:

Debt service is not an expense. It goes below NOI. Also make sure that your NOI is at least 30% higher than your debt service. (debt coverage ratio > 1.3)

Trying to wrap my head around this - why is debt service not an expense?

0 Votes

I am looking to start the search next year for my first multi-family property, and wanted to look at cashflow statements of those already running performing multi-family properties.

What am I missing for fixed expenses?
What am I missing for variable expenses?
What do you estimate for monthly maintenance?
What do you estimate for monthly vacancy?

My cashflow statement shows something like this:

INCOME

Unit #1 - $800
Unit #2 - $800
Unit #3 - $800
Unit #4 - $800

TOTAL INCOME: $3,200

EXPENSES

Reoccurring Expenses

PI: -$922
Taxes: -$760
Insurance: -$125
Property Management Fee: -$320

Total Reoccurring Expenses: -$2,128

Variable Expenses

Property Maintenance: $0
Vacancy: $0

Total Variable Expenses: $0

TOTAL EXPENSES: -$2,128

CASHFLOW: $1,072

Thanks in advance!

0 Votes

Really depends on your local market. We did a subdivide and all it required was a survey. However this was rural land. Good luck

0 Votes

Originally posted by @Keith Bloemendaal:

This can be different from builder to builder. It also depends if the builder is a developer or just buys developed lots. It also can depend on cash flow and their specific business plan.

At my previous job, we were developers and builders. At one time we had over 150 lots developed, and another 60 acres or more that we owned but hadn't developed yet.

Me personally, just starting out, I just bought 3 lots here adjacent to one another. I close on them in a couple of weeks and will be able to start immediately. My homes will be spec, and I will stagger the start of them (30-60 days apart), when the first one goes under contract, I will purchase another lot. My goal is to always have a home ready to buy, I may need to increase to 4-6 lots in order to do so, we'll see how 2015 rides out.

In my Town it takes 2 weeks or less to get building permits, maybe it helps that I sit on the Planning and Zoning Board, but we are a small beach town. Permits to create a subdivision is a whole other ball game, 6-12mos depending on the size/scope.

This is a great strategy. Keep your homes rolling so you always finish one and hopefully have a buyer lined up at time of completion. Are you buying turn key developed lots?

0 Votes

Ben, inspiring post. I like your writing style. Great job and much success to you in 2015.

1 Vote

Here is a deal I looked at today

$80k list price
$10k repairs
$105k ARV
$1300 / mo rent
- $225 / mo taxes
- $85 / mo insurance
- $22 / mo HOA
$627 total monthly expenses
$673 monthly cash flow, after 50% rule you're at $336 per month

and this was a deal I found the MLS.

7 Votes

Could you go into further detail regarding the A and D financing? When you mention going vertical is that what you mean by construction begins on a lot? Do terms of loan change when this happens, etc?

0 Votes

Great thread - just wondering as a developer why not take the sale to the builder & move on to the next deal? Seems like a lot can happen in 24 months. If prices appreciate higher I assume you would make more profit on the builds as well.

0 Votes

All Forum Posts by: Danny Day

Danny Day has started 70 posts and replied 469 times.

Post: Cashflow statements on performing properties

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