Real Estate Math
A 10-unit Illinois apartment building has an effective gross income of $108,000, operating expenses of $43,200, and annual debt service of $35,000. What is the debt coverage ratio (DCR)?
A1.84✓ Correct
B1.86
C1.51
D1.85
Explanation
NOI = EGI - Operating Expenses = $108,000 - $43,200 = $64,800. DCR = NOI ÷ Annual Debt Service = $64,800 ÷ $35,000 = 1.851, approximately 1.85. Lenders typically require a DCR of 1.20-1.25 minimum to ensure the property generates sufficient income to cover debt payments with a safety margin. A DCR of 1.85 is well above minimum requirements.
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