How To Analyze A Real Estate Deal

How To Analyze A Real Estate Deal

When you’re considering the purchase of commercial income property you need to know as much as you can about the income and expenses before you even consider making an offer.

There are Four calculations that every real estate investor should utilize to determine a potential income property’s investment quality.

They are the ensuing:

1) Gross Rent Multiplier

2) Net Operating Income

3) Capitalization Rate

4) Debt Service Ratio

Gross Rent Multiplier (GRM):

The gross rent multiplier is a simple method by which you can estimate the market value of a commercial income property. The advantage is, this is very easy to calculate and the GRM can serve as an extremely useful precursor to a serious property analysis, before you decide to spend money on an appraisal.

To Calculate the GRM:

Gross Rent Multiplier  =  Market Value  /  Annual Gross Scheduled Income

Transposing this equation:

Market Value  =  Gross Rent Multiplier  X  Annual Gross Scheduled Income

Net Operating Income (NOI):

Net Operating Income is a property’s income after being reduced by vacancy and credit loss and all operating expenses. The NOI represents a property’s profitability before consideration of taxes, financing, or recovery of capital.

To Calculate the NOI:

Net Operating Income  =  Gross Operating Income less Operating Expenses

Capitalization Rate (Cap Rate):

The capitalization rate is the rate at which you discount future income to determine its present value. The cap rate is used to express the relationship between a property’s value and its net operating income (NOI) for the coming year.

To Calculate the Capitalization Rate (Cap Rate):

Capitalization Rate  =  Net Operating Income  /  Value

Transpose this formula to solve for the ensuing variables.

Value  =  Net Operating Income  /  Capitalization Rate

Net Operating Income  =  Value  X  Capitalization Rate

Debt Service Ratio (DCR):

Debt service ratio is the ratio between the property’s net operating income (NOI) for the year and the annual debt service (ADS).  Potential mortgage lenders look carefully at the DCR and its future projections, basically they want to know if the property can generate enough income to pay the mortgage in addition to cash reserves and a profit.

To calculate the Debt Service Ratio (DCR):

Debt Service  =  Annual Net Operating Income (NOI)  /  Annual Debt Service

Winston Rowe & Associates really wants to be able to find a way to help everyone who comes to them find a funding solution that meets their needs.

That’s why Winston Rowe & Associates actually wants to speak with clients, so they can truly understand your business and its distinct needs.

The best funding solutions occur when they combine data with consultation and common sense.

They can be contacted at 248-246-2243 or visit them online at

HUD FHA 223 Apartment Building Loans

HUD FHA 223 Apartment Building Loans

For those seeking multi-family properties, HUD Federal Housing Administration (FHA) loans provide an easier way to finance this purchase with fewer qualifications and increased flexibility.

HUD approved lenders are able to assume a greater level of risk and provide borrowers with the most aggressive rates and terms in the market.

HUD 223(f) apartment loans are available for the acquisition or refinancing of 5+ unit multifamily properties and are a great financing option for borrowers looking for maximum leverage and longer fixed rates and terms.

The program is available for market rate rental housing or for properties accepting rental assistance, either tenant based or project based a 30 day minimum lease term required.

There are no income or rent restrictions under Section 223(f) unless otherwise required by a project based HAP contract or other regulatory agreement. HUD FHA 223(f) insured mortgages are non-recourse with no market – economic or population – restrictions.

The property must meet a minimum three-year stabilization requirement, with complete kitchens and baths and have been completed or substantially rehabilitated prior to the date of the mortgage application.

The loan may include repair costs not to exceed 15% of its value after repairs or no more than $6,500 per unit, except in high cost areas. Repairs may not include replacing more than one major building system such as plumbing or electric.

Cash out Refinances are allowed when 80% of value exceeds existing debt plus transaction costs, but only 50% of the net cash will be released at closing.

HUD FHA 223 (f) Multifamily Financing Guidelines:

Loan sizes above $1 million – no maximum

83.3% LTV for market rate apartments

87% LTV for project based rental assistance

Up to 35 year fixed rate terms

1.17 minimum DSCR

HUD insured mortgages are non-recourse

5+ residential unit properties, including, detached, semidetached, row, walkup, or elevator-type rental or cooperative housing.

All 50 states including the US Territories of Puerto Rico, U.S. Virgin Islands, and Guam

With a core focus on flexibility, Winston Rowe & Associates really wants to be able to find a way to help everyone who comes to them find a funding solution that meets their needs.

The best funding solutions occur when they combine data with consultation and common sense.

That’s why Winston Rowe & Associates actually wants to speak with clients, so they can truly understand your business and its distinct needs.

You can contact them at 248-246-2243 or visit them online at

Freddie Mac Rental Income Calculations Changed

Winston Rowe & Associates

The changes are primarily aimed at determining the stability of that income, especially when it is short term and does not involve a lease.  The changes apply to loans with settlement dates on or after February 9, 2018.

Commercial loans used to purchase or refinance the subject property, or a non-subject property, which was not owned in the prior calendar year requires considering net rental income only up to a limit of 30 percent of the total of that net rental income plus all other stable monthly income used to qualify the borrower.

The exception would be a borrower who has a documented history of investment property management experience of at least one year.

The change is to provide support to sustainable and successful homeownership by requiring a reasonable limitation upon the reliance on a newer type of income stream.

To use rental income in refinancing a 1- to 4-unit investment property, a 2-to 4-unit primary residence, or a non-subject investment property, the following conditions must be met.

Short term rental income from a source where a lease is not utilized must have a two-year history documented on IRS Schedule E and the property must have been used for the purposes of producing rental income for that period of time.

Long term rental income can be verified through either a current signed and executed lease with an original term of one year or through income reported on Schedule E.

Sellers may also determine that rental income is stable without a lease when it is evident the income is not short-term, based on the documentation provided.

Changes to rental income requirements reflect changes in the rental market such as short-term rental income and are intended to support the determination of stability, calculation of rental income, and a reasonable expectation that rental income will continue.

The Freddie Mac Bulletin (#2017-12) also includes technical changes to rental income calculations, clarifications of some self-employed income revisions made last year.

This article was prepared by Winston Rowe & Associates.

They are publishers of Free eBooks and provide financing for a wide variety of commercial real estate

You can contact them at 248-246-2243 or visit them online at

2018 USA Real Estate Investing Economic Outlook

2018 USA Real Estate Investing Economic Outlook

The U.S.A. economic outlook for this year for all major commercial real estate sectors, are expected to have extensive growth because of the impact of President Donald Trump’s economic and business reactivation policies; tax reform, infrastructure spending, immigration policy, health care policy, business spending, deregulation and investment among others.

The country’s continued economic resurrection and rising employment in 2018, should benefit all major asset classes.


U.S. office market growth should continue in 2018, but at a slower pace, due to higher completions and the tight labor market’s impact on tenant demand.

Industrial & Logistics:

Although we are well along in the economic cycle, in the e-commerce/multi-channel cycle we are not, so demand for high-quality, well-located industrial real estate should not wane anytime soon. In most markets, a lack of quality space options is challenging those seeking to expand their supply chains.


Changing demographics, consumer expectations and multi-channel retailing will continue to reshape retail and its real estate environment in 2018. The consumer trend toward off-price and discount retail will continue, with mid-range retailers seeking new ways to limit share losses to lower-priced players.


Developers are poised to register the second-highest annual completions count of this cycle in 2018, down by 9.2% from 2017’s cycle peak. Because apartment starts began to slow in 2017, the multifamily market will get a reprieve from new supply by late 2018 and throughout 2019.


Forecasts for continued U.S. economic expansion portend a favorable year ahead for the U.S. lodging industry, with forecasts of income and employment growth, coupled with slowing supply growth, promising increased demand for hotels.

Data Centers:

The U.S. wholesale data center market continues to thrive, with sustained record-setting absorption levels for the past three years. Transformation and flexibility are the key themes in the multi-tenant data center space in 2018.

Medical Office:

The direction of health care policy and payment mechanisms may remain uncertain, but rapid growth in the older population will remain a significant tailwind for medical-office demand in the years ahead.

Seniors Housing:

The seniors housing market improved in 2017 and is set to improve further in 2018, largely due to lower construction levels.

Winston Rowe & Associates prepared this article. They are a national due diligence and advisory firm specializing in structuring complex commercial real estate transactions.

They can be contacted at 248-246-2243 or visit them online at

REIT Real Estate Investment Trust Explained

REIT Real Estate Investment Trust

REITs, or Real Estate Investment Trusts, are companies that own or finance income-producing real estate in a range of property sectors.

These companies have to meet a number of requirements to qualify as REITs.

Most REITs trade on major stock exchanges, and they offer a number of benefits to investors.

A REIT is a company that owns, operates or finances income-producing real estate.

REITs historically have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation.

Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns.

Modeled after mutual funds REITs provide all investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive and revitalize.

Types of REIT’s

Equity REITs

A company that owns or operates income-producing real estate

Mortgage REITs (MREITs)

Provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments.

Public Non Listed REITs

PNLRs are registered with the SEC but do not trade on national stock exchanges.

Private REITs

Offers that are exempt from SEC registration and whose shares do not trade on national stock exchanges.

REITs must pay out at least 90 percent of their taxable income to shareholders and most pay out 100 percent.

REIT owned real estate, located in every state, is an important part of the U.S. economy and local communities.

This article was prepared by Winston Rowe & Associates a national due diligence firm for commercial real estate transactions.

The can be contacted at 248-246-2243 or visit them online at

What are Commercial Bridge Loans and How Do They Work

Commercial Hard Money Bridge Loans

Commercial bridge loans are short-term commercial real estate loans that are used for the purchase of commercial properties when permanent financing is not an option.

Their primary use is when a property needs significant renovation before it will qualify for permanent financing.

Bridge loans typically have repayment terms of between 6 months and 3 years, after which the property is either sold or refinanced with permanent financing.

Reasons a commercial real estate investor use a bridge loan:

The property has unsatisfactory occupancy rates

The real estate investor’s credit profile needs improvement

The real estate investors can’t wait for permanent financing

Commercial bridge loans can be used for the purchase or refinance of office buildings, hotels, retail property, multifamily housing including apartment complexes, and even for raw land that will be developed for commercial purposes.

Commercial bridge loans feature quick closings and the loan amounts are based on the fully improved value of the property, rather than its “as-is” value.

In this way, commercial mortgage bridge loans provide the capital that a real estate investor needs in order to close on opportunities quickly, complete necessary renovations, and either sell or refinance into permanent financing with affordable monthly payments.

The most common purpose of a commercial mortgage bridge loan is for the purchase and improvement of an underutilized commercial property.

They enable you to both purchase a property that’s in poor condition and perform needed renovations and upgrades.

How Commercial Mortgage Bridge Loans Work?

A commercial bridge loan works best when you’re acquiring your target real estate at a large discount, typically due to poor condition or poor management.

Unlike permanent commercial real estate financing, bridge loans are highly customized products, so the rates and terms can vary significantly.

Commercial bridge loans work by lenders making riskier loans for short periods of time. While providers or permanent commercial real estate financing will lend based on current LTV (loan to value), commercial bridge loan providers will lend based on LTC or ARV (after-repair-value). Their financing allows you to bet on the property’s future value, not its current value.

Winston Rowe & Associates a national due diligence and advisory firm published this article. They can be contacted at 248-246-2243 or online at