For multi-family investors, what's your ratio of gross income to mortgage payment?
I'm considering purchasing a building but want to make sure I'm making enough in rent to cover the mortgage and general expenses. Building list price is $1.5M, with $107k in gross annual income, with a value add opportunity to increase to $120k. 

Thoughts?
[{"id": "ho9ptmn", "text": "https://www.multifamily.loans/apartment-finance-blog/what-is-dscr", "replies": [{"id": "ho9qn54", "text": "And you really want to use NOI instead of Gross Income    and understand the bank is mostly concerned with current income, not projected. Usually requires a higher down payment if rents are below market in order to satisfy coverage. But in the CRE world there no hard rules and loan terms and rates depend on who you are more than the asset sometimes.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ho9qsrs", "text": "Is it a buy and hold? Then I\u2019d look at my cash on cash. Is it a flip? Then I\u2019d look at my IRR and multiple. You need your expenses and mortgage payments to figure that out.", "replies": [], "depth": 1}, {"id": "ho9uus0", "text": "Take 30% off for expenses and 5 cap it. Gets to $1.5MM", "replies": [{"id": "hoaddrm", "text": "30% of expenses is very low. My napking calculation is 40% and cap depends on the market, but for a small class B or C building, I would use 6 cap. That's 1,070,000.", "replies": [{"id": "hoadywp", "text": "I\u2019m from Chicago. Even little rinky dinks go for 5", "replies": [], "depth": 3}, {"id": "hoaslym", "text": "Cap rate compression has been crazy the past year\u2026can pretty much assume any Mf deal in anywhere, USA is a 5 cap\u2026", "replies": [{"id": "hoawq33", "text": "It depends on where and how. Primary markets, yeah, secondary markets b class, it depends. I also work for a lender, thus I still have to be conservative.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hobm79t", "text": "Montreal her. 35% expense ratio including maintenance reserves and 3.5 caps are not rare for semi stabilized assets with some fair runway to capex spend. If you're talking capex to spend right away and zero stabilizing or market rents stuff will sell for a 2 or 3 cap. \n\nI bought a smoke of a deal that needs 50% of the building value at a 2.7cap. market value was closer to a 2.2 cap lol. Rent was 48k with 31k NOI. Paid 1.1m. Spent 550k in it and it's NOI is now 100k a year and could sell it for 1.9m easily.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ho9voy5", "text": "I work as an analyst for a private lender. The measure we and most banks do is called \"Debt Service Coverage Ratio\". This is the NOI/annual debt payment. We in the private lending world can work with a 1.00 dscr but most banks do 1.25 dscr. \n\nWhen I underwrite a multifamily, I try to look for similar expenses in costar and, at least in Florida, I calculate the property tax by using the millage of that property by 80% of the purchase price. Here in Florida many times multifamily deals that seem perfect are derail by the high property taxes the property will incur once bought.\n\nI would say most properties I have seen have an expense ratio of 35% to 45% of rents, but I have seen them in the 50% and 60% when is an value add property, thus is just temporal.", "replies": [{"id": "hoad5u1", "text": "Its always the taxes that getcha. They jump up hundreds of thousands on purchase", "replies": [{"id": "hobi4n2", "text": "Depends on state", "replies": [{"id": "hobj0tv", "text": "Highly dependent but in my markets reassement is usually done at purchase.", "replies": [{"id": "hoedr4y", "text": "Like i said, it's dependent on the state... In the upper midwest, states re-assess annually or every other year.  New assessment isn't triggered by a sale.", "replies": [{"id": "hoeg8sd", "text": "Yes I agree with you.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hoasfm6", "text": "The agencies use 1.25x min for most loans as well", "replies": [], "depth": 2}, {"id": "hobf68e", "text": "Everything here is correct.\n\nI\u2019d target a 1.5x DSCR or higher just to ensure that you have a buffer in case shit goes south.", "replies": [{"id": "hobmdsr", "text": "Yesssss.  1.25 is rock bottom bare minimum I would even consider.", "replies": [], "depth": 3}], "depth": 2}, {"id": "hocyshr", "text": "I manage CREs in Central Europe and 1,2 DSCR is the minimum here. If it goes below that it goes into default and the banks starts to fuck around. I second that 1,5 DSCR is the safe space when you go into debt.", "replies": [{"id": "hqdr5bs", "text": "currently evaluating multi family but with 1.15 Dscr", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hoamago", "text": "In 2020, acquired 47 units for just under $1.7mil. ~$275,000 in annual rent, $120,000 in annual mortgage. About 50% expense ratio.", "replies": [{"id": "hobbh38", "text": "Taxes", "replies": [], "depth": 2}, {"id": "hoblkef", "text": "That sounds like a 10 cap. Am I dreaming? What area of the USA are you in? That would sell for easily. For 5m where I am in Canada!", "replies": [{"id": "hoblqkr", "text": "The heartland of America. Missouri - the Show Me state.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hoauomd", "text": "That income would barley cover the mortgage if you used 0% expense ratio for that property you shouldn\u2019t pay more than 800 at most", "replies": [], "depth": 1}, {"id": "hoax571", "text": "Bro that\u2019s a 3.5 cap on trailing numbers at 50% expense ratio. You buying in Austin or something?", "replies": [{"id": "hobijq2", "text": "If it\u2019s value add, cap rate is low on actuals.  Closer to 5 with a 40% OER on pro forma is market right now in most secondary markets.", "replies": [{"id": "hobr6t0", "text": "Based on his assumption that you can lift gross to 120k and keeping a 50% expense it\u2019s a 4 cap post reno.", "replies": [{"id": "hoedxpw", "text": "And it's 4.8% if you use the 40% OER i referenced.... not understanding your point?", "replies": [{"id": "hoejwze", "text": "Unless you\u2019re in certain parts of Cali is it really realistic to run expenses that light on a deal this size? \n\nI use 50 as a baseline in Texas for napkin math.", "replies": [{"id": "hof794i", "text": "It's so location, age, utility structure, and condition specific i have no idea.  Midwest Class B is roughly 40% all day.", "replies": [{"id": "hofiwd1", "text": "Interesting", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hob5lfr", "text": "Globally 2.1 DCR, I have proeprties ranging from 1.75 DCR to 2.4 DCR or so.\n\nI'm about to pull equity out of my core properties for the first time which will bring my best two proeprties to about 1.4 DCR is is uncomfortable for me. It's only OK because I'm using the liquidity to acquire a new property that will be 2.5+ DCR upon stabilization.", "replies": [{"id": "hobhp0l", "text": "2.0 DCR is very aggressive for US standards. You are talking that it would need a cap above 10% at 30 years and 3.5% to be able to hit it. Maybe in a highly inflationary environment, this makes sense.", "replies": [{"id": "hobjark", "text": "I'm talking, for example, a property that's about 58% LTV with a $9700 rent roll and monthly payment of $4050ish including tax escrow.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hocfuz1", "text": "Your paying 50% to much.", "replies": [], "depth": 1}, {"id": "hoenq06", "text": "Who cares what the gross is ...... What's the NOI???", "replies": [], "depth": 1}, {"id": "icjiacl", "text": "Great post. Does anyone know of any promising startups? What do you guys think of company? I am planning to invest there.", "replies": [], "depth": 1}]