Commercial Real Estate Loan Calculator
Analyze your property investment with DSCR and LTV metrics.
Understanding Commercial Real Estate Financing
Commercial real estate (CRE) loans differ significantly from residential mortgages. Lenders prioritize the income-generating potential of the property over the personal credit of the borrower. This calculator helps you determine if your commercial investment meets standard banking requirements.
Key Metric: Debt Service Coverage Ratio (DSCR)
The DSCR is the most critical number in commercial lending. it is calculated by dividing the Net Operating Income (NOI) by the Annual Debt Service. Most commercial lenders require a minimum DSCR of 1.20x to 1.25x. This ensures the property generates 20-25% more income than is required to pay the mortgage, providing a cushion for vacancies or maintenance.
The Role of LTV in Commercial Loans
Loan-to-Value (LTV) represents the ratio of the loan amount to the purchase price or appraised value. While residential loans might allow for 3% or 5% down, commercial loans typically require 20% to 35% down, resulting in an LTV of 65% to 80%.
Realistic Example Analysis
Imagine purchasing a small office building for $1,000,000 with a $250,000 down payment (75% LTV). If your interest rate is 6.5% on a 25-year amortization, your monthly payment would be roughly $5,063, or $60,756 annually. If the building generates $120,000 in NOI, your DSCR would be 1.97 ($120,000 / $60,756), which is considered a very strong and "bankable" deal.