Estimating Debt Assumptions

[Jorge Abreu]

When underwriting a property, assumptions related to its debt can have a significant impact on returns and valuations. It is crucial to consider various factors to ensure accurate projections.

These factors include the total loan amount, interest rate, whether the rate will be fixed or floating over the loan term, the amortization period, the loan term, and the availability of interest-only periods or future funding.

Developing relationships with lenders can be advantageous, as it allows for obtaining prompt term sheets, which clarify the likely loan terms and their impact on projected cash flows during an acquisition. Making incorrect debt assumptions can jeopardize deals, so it is important to gather rough terms from one or two lenders before submitting an offer. This approach will provide confidence in assumptions and align the necessary equity to successfully close the asset.