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How to Determine the Optimal Level of Debt

How to Determine the Optimal Level of Debt

Understanding how to determine the optimal level of debt is a crucial skill for any developer. That's why, in this video, Scott Choppin, Urban Pacific Founder and CEO lays out exactly how to make this calculation.

Scott: Well, the optimal level of debt on any deal will differ from deal to deal. So, if you get different product types- apartments versus hotels versus commercial office will each have their flavor of what's a either standard, or optimum, or appropriate amount of debt. If you think about it more fundamentally, the answer is the amount of debt that makes the deal feasible and that is underwritten in an economic, and conservative way. What I mean by that is you would never borrow more debt than you needed because you don't want to necessarily over-leverage the deal. There is such a thing as too much debt.

 

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