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DCR - What to Consider When Looking at Multi-Family Investments

Dustin Edwards • Jun 22, 2023

Many investors find that while managing a single-family home is easier, multi-family investment properties offer a higher return on investment (ROI). With increased tenants, multi-family homes can better protect the property from market conditions. However, investing in multi-family properties can be more involved. With an increased number of tenants comes an increased amount of capital needed to maintain the properties and increased regulations.


When looking for multi-family home investment opportunities, analyzing the Debt Coverage Ratio (DCR) is a useful tool to determine whether the property is financially viable. Below are a few elements to keep in mind when looking to invest in multifamily rental properties.


How to Calculate for DCR

DCR is often calculated by finding the net operating income(NOI) of the property. For example, in this scenario, it's $850,000 per year with a combined annual debt service of $680,000. The formula looks something like this:


$850,000/$680,000 = 1.25x DCR


Typically a DCR result of over 1 is considered profitable. Anything less, and it’s considered a loss.


While calculating for DCR isn’t too complicated, it's incredibly important to calculate the NOI as accurately as possible. If it's not calculated correctly, it may lead to inaccurate results, which can result in you losing money.


Stability of Cash Flow

Stability Cash Flow is an important indicator of the ability to meet obligations such as loan payments, interest, bills, and maintenance fees. Using the DRC, you can measure the property's ability to generate adequate capital to cover your debt obligations. You can then analyze the previous projected rental income, vacancy rates, costs of operations, and future rent increases. This can help you to determine an estimate of what the property's potential resources will be. If the DCR is high, this property is considered desirable because it can generate enough income to cover its debt obligations. Low DCR, on the other hand, is considered far less enticing as it may require further investment.


Lending Requirements

Most lenders will have a specific DCR/DSCR requirement before approving loans. Knowing these requirements is critical when applying for a loan. A lender may use a form of the DCR to determine if you will be eligible for the loan. They may take into account both your debt and income. Naturally, more personal income and less personal debt will increase the likelihood of approval. Large personal debts, including mortgage, credit card debt, or student loans, can be detrimental to receiving a loan. A higher DCR also indicates to the lender there is a lower financial risk. Which greatly improved the likelihood of a favorable loan.


Evaluate the Market

The market conditions can play a meaningful role in how successful a multi-family investment property is. Items such as rental demand, vacancy rates, and potential rental growth in the target market can help you determine the property's potential income. This can have a great effect on the DCR.


In order to make an informed investment decision, you need to best align your investment strategy with the property's DCR goals and long-term program.


Understanding how to calculate DCR when searching for a multi-family investment property can be difficult for first-time and experienced investors. If you need help calculating the DCR of an investment property in Long Beach, CA or need a property management company to help you manage a rental property you own, we invite you to call us today at (562) 888-0247 or fill out our
Owner Application online.

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By Dustin Edwards 01 May, 2024
Everyone wants to feel safe in their homes. As an investment property owner, it's up to you to decide whether or not to include security measures in your property. Many of the costs associated with the security measures can be included in the rent, meaning not only can you keep your property safe, but you can earn more income in the long run. However, you would still want your tenants to have renters insurance to protect their assets. Today, we’ll discuss the top five security measures you can add to your property and why they're beneficial to you and your tenant. Security Cameras Cameras are probably one of the first security measures people think about when asked about security. Cameras provide more benefits than just surveillance. They provide an extra level of security for the safety of the tenants and their belongings. Additionally, security cameras can be useful when repairs are required. Cameras can aid in supervising repairs and maintenance to ensure you’re receiving the agreed-upon work. During vacancies when the property is empty, security cameras can help keep the property safe from potential intruders. Doorbell cameras are incredibly popular now. They provide the aforementioned safety of a camera that can be accessed remotely, as well as the ability to communicate with visitors. Although one must be careful never to say you're not home, just say you're unavailable to strangers. Security Lights Security lights with motion detectors are another effective tool when adding security measures to your property. These lights brightly if a potential intruder attempts to get near your home. They can provide enough illumination to see the intruder or, at the very least, scare them off. Nowadays, you can find a combination of security cameras and motion-activated security lights, such as the floodlight cam wired plus from Ring . Additionally, because these lights only turn on when motion is detected, they’re more cost-effective than traditional lights with a switch. Illuminate the Property Light generally deters intruders as it's more difficult to hide. Adding lighting to the landscaping can increase the security of the property while creating a relaxing atmosphere. Lights can also be used in other areas of the property to accent features such as trees, benches, or artwork. This can help your property stand out while giving your tenants an additional feeling of safety. Keyless Entry Keyless entry is seen as both a convenience feature and a security feature. They usually use an electronic passcode, biometric data, or grant access through a smartphone app. Physical keys can be lost, stolen, or duplicated. You reduce the risk of unauthorized entry by eliminating the need for a physical key to enter the property. Many keyless entry systems include several features, such as remote locking and monitoring. Although keyless entry is a great new technology for keeping your tenants and properties safe, they’re best used with other security systems. Security Company Nothing beats having an extra pair of eyes on your property for security. This is where security companies like ADT and SimpliSafe come in. While companies may deal with security in varying ways, they aim to protect your investment. While safety is the primary role of a security company, remember that many tenants may be willing to pay more for a premium amenity like a home security company. Keeping your property and tenants safe is incredibly important to the longevity of an investment property. If you’re looking to improve the security of your Long Beach rental property or need help managing your beach city rental property, we invite you to call us today at (562) 888-0247 or fill out our Owner Application online .
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