Apartment debt to income

5 Replies

Hey guys, 

Ive been loooing through the forums trying to find a discussion on this but I can't seem to find exactly what I'm looking for. Most of the examples and treads are to do more with duplexes and fourplexes. Basically I'm working on an apartment aqusision, the very beginning stages, and trying to figure out what would be the highest loan to income ratio I should be willing to go. it's an 8 unit apartment building with an 8% cap rate. 100% rented for 10+ years. The problem, with what I'm willing to out in I'll be at a 60% loan to income ratio with the set expenses factored in. It's a lower income type property.

Thanks, toby

@Toby Hyatt Could you clarify "I'm willing to out in"?

"The problem, with what I'm willing to out in..." 

@Andrew Johnson sorry, phone changed it I guess and I missed it. I was referring to the amount of cash that I am willing to put in on the deal.

@Toby Hyatt I think I'm still a little hazy as to loan-to-income. I'm assuming that you don't mean LTV (loan to value) or if you're looking at the DTI just for the property, for you as a buyer, etc. Are you worried about if it's a good deal? Are you worried about obtaining financing? It might be better if you posted the ballpark financials of the property that you're considering. Either that or I'm just dense and someone else can answer better :-)

@Andrew Johnson I'm bad at explaining sometimes.

The ltv would be around 75%

Gross  income                         $57,000

Net operating income est.     $45,000

Bank note principle/interest $27,000

All based on yearly. 

Basically just looking for opinions.

Is $17,000 going to be sufficient to cover my ***.     

@Toby Hyatt So I'll go out on a limb and say that something is off with your figures.  Right now you have $12K ($57K - $45K) in expenses.  That has to cover insurance, property taxes, vacancy, maintenance, etc. along with a cap-ex holdback.  So, for you, it's all got to be covered by 21% of gross rents ($12K/$57K).  And most of us (likely not you) have to also pay a property manager.  Even if you want to self manage you'd better believe (that when you sell) the next buyer (someone like me) will factor that in.  

What you probably want to do is walk through how you came up with $12K as the expenses.  Texas is moderately expensive on the ol' property taxes and if it's an 8-cap and we use $45K the purchase price would be around $560K.  $560K * 1.81% (average property tax) = $10K.  If that's the case then you have $2K for insurance, break/fix, utilities (almost certainly water), landscaping, etc.  

If it's not in Texas then you're probably using a property manager and that takes $5,700 off of the top and you're left with $6,300 for all of those expenses.

In short, something about the numbers doesn't add up...

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