Four loan calculators every investor should run before making an offer
Ten minutes of arithmetic that stops you buying the wrong property.
Biscayne Lending 2 min read
Most bad deals are visible in ten minutes of arithmetic. Here are the four calculations worth doing before you make an offer, what each one tells you, and the trap in each.
1. Rental coverage (DSCR)
What it answers: will the rent cover the payment, and by enough for a lender to write it?
Rent ÷ (loan payment + taxes + insurance + HOA). Above 1.20 is comfortable in most of the market; below 1.00 means the property costs you money every month.
The trap: using principal and interest only. Taxes and insurance belong in the denominator and leaving them out flatters the answer by twenty per cent or more.
2. Flip profit
What it answers: after everything, what is actually left?
Sale price, minus purchase, minus renovation, minus the cost of the money, minus closing costs in, minus the cost of sale out. That last one surprises people: commission plus documentary stamps plus title can be 7–8% of the sale price.
A house bought at $300,000, renovated for $60,000, sold at $500,000 is not a $140,000 profit. Take off roughly $34,000 for the loan, $5,000 to buy, and around $40,000 to sell, and you are nearer $61,000 — still good, but a different decision from $140,000.
The trap: an optimistic after-repair value. Use sold comparables of finished houses nearby.
3. Leverage
What it answers: how much of this is the lender's money, and how much is yours?
On a flip the loan is the lower of a percent of cost and a percent of ARV. Working out both tells you your real cash requirement before you are committed.
The trap: being told "90% financing" and assuming that is what you will get. The lower cap decides, and it is often the ARV one.
4. Payment
What it answers: what leaves your account each month, and what is still owed at the end?
An interest-only payment is lower — and pays off nothing. $300,000 at 12% interest-only is $3,000 a month, and $300,000 still owed on the last day.
The trap: treating a low interest-only payment as cheap. It is deferred, not cheap.
Do them in this order
- Leverage — how much cash do I actually need?
- Payment — can I carry it while I hold it?
- Coverage or profit — does the plan work at the end?
If step one already exceeds what you have, the other two do not matter, and you have saved yourself a week.
Run them now
All four are free, on this site, no sign-up: open the calculators. They are the same ones our brokers use on the phone.
Every result is an estimate from the figures you type. It is not a quote, an approval, or a commitment from any lender — terms come only from a lender, in writing.
What next
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General information, not legal, tax or financial advice. Loan terms come only from a lender, in writing, after underwriting. Licensing and compliance rules differ by loan type and state.