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?
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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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