Example card
Debt sizing shows which lending test actually binds
On this file, DSCR supports $22.9M, debt yield supports $21.8M, and LTV supports $23.4M. Debt yield is the tightest limiter, so leverage caps price before headline value does.
Chapter 7: Build Total Basis and Capital Stack
Build Total Basis and Capital Stack
Translate price into total basis, then compare the uses against supportable debt and required equity so the financing reality is visible before the bid goes out.
Decision output: Sources And Uses Summary. Case requirement: show in-place financing support, optionally stabilized takeout.
Inputs
Inputs
- Purchase price, closing costs, fees, reserves, and CapEx.
- Debt sizing assumptions: DSCR, LTV, debt yield, and a debt constant or rough loan terms.
- Value conclusions from the in-place and stabilized chapters for context.
Analysis
How to analyze it
supported debt = min(DSCR proceeds, LTV proceeds, debt yield proceeds)
supported debt = min(DSCR proceeds, LTV proceeds, debt yield proceeds)
Start with uses, then solve for supportable debt and the residual equity check. If the equity requirement becomes unrealistic, that is a pricing problem even before return hurdles are modeled.
Output
What output you should produce
Output artifact: Sources And Uses Summary
- A sources-and-uses summary with all-in basis, supported debt, and required equity.
- A note naming the binding financing constraint.
- Optional stabilized-takeout framing if it matters to the capital story.
Common mistakes
Common mistakes
- Leaving CapEx or reserves out of basis.
- Assuming leverage instead of solving for it.
- Mixing stabilized leverage assumptions into an in-place bridge execution plan without explanation.
Price meaning
What this means for price
If the capital stack does not clear with believable debt and equity, price is already too high regardless of what the valuation chapter suggested.
Teaching calculator
Debt Sizing
Interactive teaching aid. Use it to pressure-test the chapter example, not to replace source-backed underwriting.
Teaching notes
- Compare DSCR, LTV, and debt yield every time instead of selecting leverage first.
- The financing constraint often caps price before the value conclusion does.
Inputs
Teaching-only framing: the published defaults are tuned to show which lender test binds, not to replace a live term sheet.
Output
Binding constraint: debt-yield
Supported proceeds: $21.8M
- DSCR proceeds: $22.9M
- LTV proceeds: $23.4M
- Debt-yield proceeds: $21.8M
Plain-language explanation: compare DSCR, LTV, and debt yield together so the tightest financing test sets the ceiling.
Current lender constraints: 70% LTV, 9% debt yield, 1.30x DSCR.