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Excess DCR

A critical connection between the investor's and the lender's viewpoint is the amount by which the net income from the property exceeds the loan payments. Investors call this positive cash flow. Lender's call it excess debt coverage. Making some simple rearrangements of the prior equations we can define excess debt coverage (xdcr) as:

Excess DCR

We now must make two critical assumptions:

  1. Lenders refuse to allow excess debt coverage to be negative. In other words, lenders require the property's net income to be at least equal to the loan payment; and
  2. Buyer/borrowers likewise will not accept negative cash flow, requiring the property "breakeven"

We must digress a moment to focus on the second assumption.

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