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The Ratio Analysis Report provides year to year projections for
important real estate
financial analysis tools
and
ratios. A brief description of the most important
real estate ratios follows.
Capitalization Rate or Cap Rate
is a ratio which is used by investors, lenders
and
appraisers to estimate the market value of income
producing properties. To learn more about the cap
rate, click on the following link. |
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Capitalization
Rate |
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Gross Rent Multiplier or GRM
is a ratio that provides a rough estimate of market
value for income producing properties. Investors use
it to quickly
size up an income property since it requires very little
financial detail to calculate. To learn more about the GRM, click on the
following link. |
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Gross
Rent Multiplier
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Loan-to-Value Ratio
or LTV is the ratio between the
balance of a loans
and the appraised value of a property. Lenders will
typically require Loan to Value ratios from 70 to 80 percent when
purchasing commercial property. To learn more about the Loan
to Value ratio, click on the following link.
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Loan
to Value |
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Debt Coverage Ratio (DCR) or Debt Service Coverage Ratio (DSCR)
is a ratio that shows the relationship
between net operating income and debt service. It
measures an income
property's ability to pay operating expenses and mortgage
payments.
A DCR
of 1 is breakeven. Most lenders require minimum debt
coverage ratios of 1.2 or
greater. From a bank's perspective, the larger the better.
To learn
more
about the
Debt Coverage Ratio, click on the following link.
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Debt
Coverage Ratio |
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Cash on Cash Return
shows the rate of earnings derived from an income property
investment by dividing cash flow by the initial
investment amount. It is used to measure the profitability of income producing
properties. To learn more about Cash on Cash Return,
click on the following link. |
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Cash
on Cash Return |
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Advantage Software LLC
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