A good source for commercial loans is the bank you’re already at. They have money to lend to local investors, yet the DSCR requirement will likely be a minimum of 1.25. Now, this is calculated with a vacancy factor that is usually AT LEAST 8.33%.
And, they will assign a maintenance factor that is an industry standard that they feel comfortable with, for the age and condition of the property. It would not surprise me that it would be at least 8%.
To that, you’ll likely need to include a charge for professional management, even if you tell them, “I’m going to manage it myself”. To that they’ll say, “that’s great, but what if you get hit by a bus? We’d better put a realistic number in there so we can hire a property manager”. In our area, that’s at least 7% but they will likely want to use 10%. They’re bankers, remember.
So for costs off your performa income you have 8.33% for vacancy, then let’s say 8.67% for maintenance, and 10% for property mgmt. That leaves us with 73% of GOI to pay the bills – property taxes being the largest of those.
In our area, property taxes avg about 20-23% of GOI. So, thinking like a banker, I’m going to take off 23% and now we’re down to 50% of gross. From that, take off any utilities you pay, occupancy permits, licenses, and fees. So, maybe you’re at 47% for an annual NOI. That number, divided by 1.25 would be your the maximum annual P&I for the year. Divide by 12. Then use a maximum term of 25 years, at whatever interest rate they’ll allow, and you’ll be able to compute the maximum loan amount.
In today’s market, I’m going to say that will likely be in the range of 65-75%, unless you make some really great income and a long history with them.
Now, if you can get the seller to carry back some of the principal, at a LOWER rate than the bank, that will sweaten the deal.
As for whether you need to buy in the name of a business, are you running a business, or is this a hobby?