Conservative Analysis, Restful Nights: Part 2
It has been a wild weekend for the country with the number rising so quickly with coronavirus. As a former soldier, I was so thrilled so many retired physicians who served in the Army answer the nation’s call when needed most!
I wanted the conversation on how to look at properties when assessing the numbers. As I mentioned in Part 1, we lean towards being very conservative in our numbers and have little gray space on whether to proceed or not. My personal belief is this can put their investor’s money (and stress level) under undue pressure.
1. One metric I am especially keen on now is break-even occupancy. This is how many units need to be occupied and paying rent in order for the property to break even. I like 75% or below to stay on the safe side.
2. Debt service coverage ratio (DSCR) is Net Operating Income/Total Debt Service is a metric that allows us to finance properly with agency debt and to other options available to close. We like this number above 1.25.
3. When it comes to returns to the investor, we like to have above 9.0% for average cash on cash, above 90% for total return, and an IRR of 15% or above. These numbers attract investors that can fund a property on time.
There are many more items I review after a thorough analysis and those will be included in additional posts.
If you have additional questions on multifamily investing, please visit www.courtneybuckinvestments.com for additional information.