There is a ratio that is extremely useful when determining whether or not a rate of condominium sales will be able to pay off the outstanding construction loan balance. It’s sort of like a breakeven calculation, but for debt and not equity.
You could use this ratio in a number of ways. The most common way I’ve seen it used is in distressed situations. It basically tells you how much you can discount your product by and still be able to pay off the loan. It’s also useful if you realize that it’ll take you longer than expected to sell off your product, and you’re trying to quantify whether or not a slower than expected sales schedule will result in you not being able to pay off the loan.
To my knowledge, this ratio does not have a name.
Over the last 15 years of teaching, I’ve consistently made the weak joke that I should name this ratio after myself. Consider this video to be my half-kidding attempt at doing so.
To watch a video that explains how to calculate it, see below. It’s only six minutes; if you’re working on a financial model for condominium development, you’ll find it useful.
https://www.youtube.com/watch?v=fKqOBcmMe7k
And the link to the file is here:
https://www.kahrrealestate.com/wp-content/uploads/2019/10/Kahr-Ratio.xlsx