While investors ask about cap rates and gross rent multipliers to determine whether or not a property meets their investment criteria, lenders tend to focus on something called the debt coverage ratio (DCR). You may not be as familiar with this metric, but you can bet that your lender or mortgage broker is intimately familiar with it because the DCR can determine financing options for a property. Definition
The debt coverage ratio is the ratio between a property’s net operating income and the annual debt service (12 months of mortgage payments) for the property. A lender that requires a higher DCR means that the net operating income must be higher in order to cover the mortgage payments. In Southern California, most lenders expect a minimum of 1.15 DCR for apartment properties. However, more aggressive lenders have been known to employ a DCR lower than 1.15, depending on such factors as borrower strength, property characteristics, and forecast income. In some cases, a higher DCR requirement (such as 1.25, even up to 1.55) may mean lower rates to the borrower.
As discussed, you divide the NOI by the annual debt service to determine DCR:
Net Operating Income / Annual Debt Service = Debt Coverage Ratio
The net operating income is the property’s gross income minus vacancy loss and operating expenses.
The annual debt service is the total of mortgage payments for the year.
If you are looking at a range of financing options, you may want to ask about the DCR for each loan program to get an idea about the maximum loan a property can support:
|NOI||Interest Rate||DCR||Listing Price|
All things being equal (NOI, Interest Rate, and Amortization), higher DCR requirements can result in lower loan amounts. As a reference, in cases where a higher DCR offers a lower interest rate to a borrower, the rate is often not low enough to offset the decrease in maximum loan dollars attainable.
I have had the pleasure of knowing and working with Leonard Manriquez from ALB Commercial Capital for over 30 years.
Leonard is a consummate professional and can get your commercial transactions closed in a smooth and timely manner. He specializes in 5+ to 100 Units or more, Leonard is your Go To lending professional for transactions Nationwide.
I would recommend Leonard in a heartbeat, as I have done many times before.
It is in my sincere humble opinion that I am totally grateful on behalf of my bank to take recognition in the fact that ALB from the level of professionalism , may it be the initial stages of the deal summary, to the deal related information, the collaboration about all aspects of the deal structure, last but not lease the processing team at ALB, it is the most outstanding firm that I have been blessed to work with.I am honored and blessed to be able to have the opportunity to work with your firm, as ALB would be a leading example for other brokerage houses to take notes from.
“We work with some of the most active commercial mortgage brokers in the west coast. ALB Commercial Capital has a platform that consistently delivers exceptional results to their borrowers. The proof is that borrowers come back to ALB time and time again!”
“As a commercial real estate banker for the past 14 years, I have had the opportunity to work on thousands of transactions with several different mortgage brokerage companies. Throughout that time ALB Commercial Capital has been one of the most honest, transparent and flat out best brokers I have ever worked with. Their commitment to their clients and expertise make them a pleasure to work with.”
“ALB Commercial Capital is our primary source for multifamily and commercial lending. They always perform on their word, and are few of the reliable lenders that will close on our transactions in a timely manner. We would not trust our clients, transactions, and 1031 exchanges with any other lender, and would highly recommended them to anyone looking for a lender that will go above and beyond their scope of responsibilities with the objective in closing your transaction.”
“I have been working with Leonard Manriquez and his Team at ALB Commercial Capital for the last 5 years. Leo and his associates bring a level of professionalism to every transaction and provide their clients with the best possible service. ALB Commercial Capital is one of the top leaders in the Commercial Real Estate Brokerage market today. We have built a strong working relationship together and would highly recommend their services to anyone looking into investment properties.”
I wanted to take a moment to formally thank you for the time and effort you and your team have spent working on our behalf. After having helped us with so many Apartment loans-and always with the best terms- I can say with honesty that your work is not just outstanding in terms of content, but also through your kind demeanor in how you present it. We look forward to working with ALB Commercial Capital through you in the future for all our commercial real estate needs.”
“ ALB Commercial Capital is incredible! They continuously help me in meeting all my needs when funding my loans. Whether your needs are great or small, ALB commercial is the way to go.”
“I have been working with and referring clients to Efon for the last 7 years. The transactions I have been involved with and also my referral transactions have gone very smoothly. Efon and ALB have proven to be a great resource for Multi-family lending.”
“As a client and an agent, I always recommend ALB Commercial Capital. I have lost count of how many loans I have done with them, but they have always delivered even on the most complicated loans. You will not find a more experienced and skilled Brokerage to get your loan to funding.”
Very professional, ALB guys go above and beyond to help achieve the goals. I can’t imagine looking to any other place.
"Leonard Manriquez and his team at ALB Commercial Capital have been an invaluable resource as we have grown our business over the last decade. Mr. Manriquez has a strong knowledge of the industry and is able to problem solve at a high level. We have worked with him on more than $100M worth of transactions and have never been disappointed with his ability to secure the best rate and terms available. The ALB Commercial Capital team is motivated, hardworking and very smart. Highly recommended."