 ## 09 May Commercial Real Estate Glossary Working list of Commercial Real Estate Terms, primarily for investing in apartment buildings.

Cap Rate – net operating income divided by price of the apartment building. For example, Gross Income is \$384,000, less 3% vacancy, less expenses of \$141,844, gives us a net operating income of \$230,636. Divide the net operating income of \$230,636 by asking price of \$5,020,000 and you get a 4.59% cap rate.

Gross Rent Multiplier (GRM) – price divided by gross income. For example, the Price of \$5,020,000 divided by \$384,000 equals a GRM of 13.07.

Debt Coverage Ration (DCR) – a ratio the lender looks at to determine if the net income will cover the loan payment and leave a conservative buffer. At the time of this writing, the DCR most banks use is 1.20. Here’s an example; Gross Income is \$384,000, minus 3% vacancy of \$11,520, minus expenses of \$141,844 equals \$230,636 in net income. With a loan payment of \$180,585 annually divided by the net income gives us a DCR of 1.28, which means the bank will loan up to approximately 50% of the \$5,020,00 asking price of the apartment building.

Loan To Value (LTV) – the is the percentage of loan of the value. In the example above, the LTV was 50%, the loan was 50% of the value of the building or \$2,510,000 of a \$5,020,000 loan. 760-929-7846

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