Board Topic: Selling 5 unit property
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Selling 5 unit property

Posted by: Sam Sep 5 2004, 02:32 AM
In the City of Los Angeles, because of rent control, Buyers cannot seem to get any loan on the 5 units. How much income does the building have to produce for a $600,000 purchase price?????

Posted by: loanuniverse Sep 5 2004, 11:34 AM
Bank lenders usually look for a 125% debt service coverage from Net Operating Income, which is calculated by:

Taking rental income
Adjusting it down by expected vacancies
Deducting Operating Expenses.


You can find a link to a spreadsheet that will help you calculate that here:

http://www.loanuniverse.com/sensitivity.php


While your question is one of debt service coverage, the rent controls also affect the value of the building and you might want to apply a capitalization rate to the Net Operating Income, and see if maybe the $600,000 price is within market.

Good luck
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