Vacancy Assumption Question
For all the multifamily RE guys, when determining LTV you can size up to assuming it’s agency 60-65% / 1.25x dscr; if the asset your acquiring is already at 7% vacancy - do you use the in place vacancy as your assumption or do you tack on a couple extra bps? Would that be double counting vacancy?
What are you assuming your vacancy will be based on how you will operate the asset. Use that number.
We look at this two ways:
CREnadian nailed it. Hopefully I can simplify this even more if you're still unclear.
The key is to identify the Market Vacancy -- this is how the lender is likely to underwrite the asset. If your Market Vacancy is 7%, then leave your in-place vacancy alone. If your Market Vacancy is 9%, then underwrite to 9% In-Place Vacancy. Whether or not you include a line item for In-Place Vacancy and another for Market Vacancy, the exercise of sizing up the max loan proceeds based on DSCR is the same.
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