Debt per Bedroom
How is it calculated?
Debt per Bedroom = Total Debt on the Property / Total Number of Bedrooms in the Property
Goal of the Ratio
This calculation is similar to the Debt per Unit, but it takes it one step further for residential rental properties. Many residential rental properties are rented on a per bedroom basis (especially student housing). Due to the number of bedrooms being the primary driver of the rents a residential rental can command, the Debt per Bedroom calculation identifies how much debt each bedroom is responsible for supporting. A higher value means that the property must be more profitable because it has higher debt obligations; whereas as lower Debt per Bedroom means the property can get by with less profits.
When is it used?
Residential Rental Business
Rules of Thumb
Lower is better
Pitfalls of this Ratio
One pitfall of this ratio is that the calculation does not take into consideration the Amortization the loan's payment is based on. Residential rental loans get paid through on-going payments, and the size of that payment his highly dependent on the amortization of the loan; so a loan could have a low amount of debt per bedroom, but it may struggle if the amortization is too short.
What changes in the ratio could mean:
- Amortizing debt on the property
- Took out additional debt on the property
- Completed an expansion/renovation that was financed with debt
Other Relevant Terms
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