Debt per Unit
How is it calculated?
Debt per unit = Total Debt on the Property / Total Number of Units
Goal of the Ratio
The goal of this ratio is to show how much debt each unit is responsible for supporting. A higher value means that the unit has to be more profitable because it must have extra excess cash flow in order to cover the higher debt load; whereas as lower Debt per Unit 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 unit 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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