What to take into your next appraisal
- Use monthly occupied homes and collected rent during lease-up.
- Distinguish an operating reserve from a reduction in valuation NOI.
- Size refinance against both value and debt-service constraints.
Build the rent roll before the valuation
Separate completed homes, available homes, signed leases and occupied homes. Track rent-free periods and arrears by lease cohort. A signed tenancy commencing next month is not this month’s collected rent.
The RICS discounted-cashflow guidance supports explicit timing and assumptions. Use current local letting evidence for rents and incentives; the numbers here are fictional and are not a UK market forecast.
Reconcile a 100-home operating year
Assume 100 homes at £1,500 monthly rent and 95% economic occupancy, including the specified vacancy and collection loss. Effective residential rent is £1.71m. Add £40,000 of other operating income and deduct £500,000 of operating costs to produce £1.25m NOI.
At a fictional 5% exit yield, value is £25m. A separate £100,000 annual capital reserve leaves £1.15m before debt service. State whether the lender deducts that reserve in its own income definition.
Apply the binding refinance constraint
Assume a 60% maximum LTV, 1.30 minimum DSCR and 7% annual debt-service constant. For this example the lender uses the £1.15m after-reserve cash measure.
| Constraint | Calculation | Maximum proceeds |
|---|---|---|
| LTV | £25m × 60% | £15m |
| DSCR | £1.15m ÷ 1.30 ÷ 7% | £12.64m approximately |
| Binding debt amount | Lower limit | £12.64m approximately |
Reconcile repayment and completion funding
If £14m of construction debt is outstanding, £12.64m of gross refinance leaves about £1.36m to be funded before fees and reserves. Adding £200,000 of closing fees increases the required contribution to about £1.56m.
During lease-up, an average 60% occupancy would produce £1.08m of annual residential rent at the same headline rate, before concessions. Do not fill that period with the £1.71m stabilised rent. Carry operating deficits and construction-debt interest until refinance actually completes.
Show when stabilisation becomes credible
Document the required occupancy, operating history, lender valuation and remaining works. Stress slower letting, lower rent and a higher debt-service constant independently.
The investment paper should report stabilised value, actual cash through lease-up and the refinance gap. A positive long-term return does not remove the need for committed cash at the transition date.
Sources and further reading
Published by Feasly. How we prepare our guides. Suggest a correction.
