Watch Your DSR
GOLF IS IN A ‘CORRECTION’ MODE. WILL YOU SURVIVE?
YOUR 'DEBT SERVICE RATIO' (DSR) WILL WARN YOU (REMEMBER 1.25)
Your DSR is your Debt Service Ratio. It's the Ratio of Net Operating Income (NOI) - sometimes referred to as Net Earnings before Depreciation, Amortization, and Taxes - to Annual Mortgage Payments.
Simply, you divide your NOI by your Annual Mortgage Payments to find your DSR. For instance, if your annual mortgage payments are $100,000 and your earnings are $125,000, your DSR is: 125,000/100,000 = 1.25.
REMEMBER WHAT A LENDER WANTS - CONTINGENCIES OF UP TO 6% - BUILT-IN!
When you figure your DSR, don't forget to include a 4% to 6% management fee and 2% to 4% capital reserve contingency in your calculations. The industry standard (according to most lenders) is approximately 6% to 10% of gross revenues. For instance, if gross income is $1 million, you need to include another $60,000 to $100,000 in contingency costs below the expense line, but before net operating income. Lenders need a contingency hedge themselves against the possibility of foreclosure (they’ll have enough reserve to hire third-party management after they boot you out). Therefore, if you cannot include a 6% contingency and remain above a 1.25 DSR, you are on your way to bankruptcy!
When you're ready to admit the Titanic is Sinking call Hermes Golf Management. (941) 739-3990. If there is a way to save the ship, first you need our kind of experience and connections.
TAKE A LOOK AT YOUR GOLF OPERATIONS
The golf course with cash reserves, a low debt level (high equity), and a realistic approach to market conditions can survive this correction and come out a winner. In fact, financially strong operators can thrive in a tough market, because they can maintain higher quality conditions while competitors cut back just to stay alive. That’s the way any economy works!
EVEN HIGHLY LEVERAGED GOLF PROPERTIES CAN SURVIVE
Remember. We highly recommend a feasibility update. That’s one of our (Hermes Golf Management) services. We know it’s hard to be entirely objective when you do this survey yourself. You need our candid, tough and revealing report to help formulate your strategies going forward (some don’t like what we report). Yes! We’ve even recommended bankruptcy protection – especially when a property is equity rich, but cash-flow poor.
Our work is very quick and a reasonable cost to you. Do the math. If you’re at or near 1.25, you should call Hermes: 941-739-3990.
