Size Debt With DSCR Before LTV
Calculate whether LTV or DSCR is the binding debt constraint.
Purchase price is $10 million. Lender max LTV is 65%. NOI is $520,000. Minimum DSCR is 1.30x. Debt proceeds are controlled by the most restrictive lender constraint, often DSCR when income is thin or rates are high. The common trap is to quote loan proceeds from LTV alone, then discover late that DSCR reduces the loan and increases required equity. Debt-sizing scenario analysis LTV test Value multiplied by maximum loan-to-value. DSCR test NOI divided by required coverage gives maximum debt service. Binding constraint Use the lower supported loan amount. LTV proceeds $10,000,000 x 65% = $6,500,000 This is the collateral-based…
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