Debt service coverage ratio

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Reference no: EM133183436

a. Sometimes, it's hard to keep track of the many people real estate entrepreneurs rely on for their success. Examples include brokers, bankers, attorneys, and contractors among others.

Of all the people around Edward that we discussed, which one should he always remember is the most critical to his success? (Hint: There's a big life lesson here)

b. There's good news and bad news.

The good news is that the seller agreed to a five-year, interest-only loan at 5% interest along the lines we discussed during the live session. The bad news is that they're only willing to do a $175,000 loan.

Based on this change, can Edward still do the deal? If he was able to make the investment as proposed, what would his IRR be? Explain your reasoning.

(You will need to use the Financial Model we worked on in class to answer this question)

c. Better news!

Edward received a call from Celia Bicego. Since the last time she and Edward spoke, a few more deals have come across her desk and, according to several appraisals she's seen on comparable Beacon Hill properties, the market capitalization rates 6.50%.

Moreover, her loan committee released new underwriting guidelines and she's able to lend up to 80% Loan-To-Cost and accept a minimum 1.20 Debt Service Coverage Ratio.

What's the maximum loan amount Edward can borrow now? Which specific loan-sizing costraint is limiting the amount he can borrow?
(You will need to use the Financial Model we worked on in class to answer this question)

Reference no: EM133183436

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