Estimate Capitalized Financing - Back of Envelope analysis
How do developers or value-add renovators estimate capitalized financing cost for a back of the envelope analysis? Is there a standard rule of thumb?
Doing LTC % of the project budget times the interest rate to the power of the project duration (ie 2 years) is a bit more off than I like, anything better?
Of course it's off because you didn't account for loan balance outstanding
TPC*LTV equals your loan. Take your loan and multiply by rate. That is how much you would pay a year(*fixed). So you multiply by duration(annualized) so 18 months becomes 1.5 years. Then you divide by two because you assume that half you loan balance is drawn for half the construction period. That is your BOE capitalized interest.
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