Cap rate used for re-fi loan

Financing, Hard Money Lenders, Private Money
1

Hello All,

When creating a re-fi commercial loan for an apartment building, what’s the usual cap rate used to value the re-fi cash out proceeds amount?

Is it 7%, 8%, 9%, 10%, etc?

2

Hi,

Find an apartment property in your area of comparable size and units that recently sold.

For the same property determine the net operating income after expenses.

Divide the net operating income by the sale price to get cap rate.

Example $24,000 / $300,000 = .08 or 8% (The Capitalization Rate)

            GR
3

I’d be more concerned with the DCR - debt coverage ratio. Ypu’ll need a min of 1.20 or for the NOI to exceed the new debt service by 20%.

4

Yes you can. Can you tell me which one is better to look for, capitalization rate or DCR? If it’s situational then please explain both. Thanks in advance.

5

Thanks for the advice everyone.

6

You guys are all right. There is no one thing that banks are going to look at. The Cap rate is not just assumed. It is the equivalent of sales comps for commercial properties. As Gold River said it is determined by other apartments in the area of similar size. But you also have to look at the debt coverage ratio. Another thing is going to be the general condition like how old are the systems and operations such as occupancy etc.