Top 5 Investment Tips In A Recession

Investing during a recession may seem to be a losing venture, but there are still ways to make money even in a recession. It will simply take more research and understanding of where the opportunities are. By doing your homework and understanding that there are money making options out there, you can make a nice profit during a recession.

When the stock market goes down, it tends to take most of the individual stocks with it. Not every stock will get pummeled, but you will see a lot of stocks will at least trend lower for some time. Remember that buying stocks is all about buying low and selling high, and a recession will allow you to find lower priced stocks that will be sure to rebound at some point.

When a recession hits, some sectors will find that their stocks lose value. However, there are some sectors that will keep its value and avoid depleting your savings in one night. Look for companies that make things that people always need. Things like food, clothing and educational products will always be among top priorities for Americans.

Investing in gold is a great way to make some money during a recession. While you want to buy gold before a market goes south, it is a long term investment that always makes money over time. Gold can be used as a hedge against a weaker dollar because gold always holds it value. It is a tangible and scarce product as opposed to a paper currency that can be printed at will. Silver is also a good investment.

A mutual fund is a mixture of stocks in different sectors. It is a safe bet because of the diversity of the stocks involved. If oil prices drop, the growth in military stocks will balance out that loss. Mutual funds are a good growth prospect and are resilient a poor market.

If you want to know what stocks will do well, or just need insight into the stock market, get a broker. A professional set of eyes on the market can only help you. This is even more true when finding a winning investment can be harder. If you are about to retire, you want to make sure you are protecting your money.

Making money is tough, but not impossible in a recession. Know the safest bets to make some money and find good value stocks. Common sense, and perhaps professional assistance, are two ways to survive a down market.

Miles Walker blogs about car insurance quotes over at CarInsuranceComparison.Org. He recently looked at Idaho car insurance.

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Debt Service Coverage Ratio in Finance & Investment Property Mortgage Loans

The debt service coverage ratio (DSCR) has three main uses: investment property, residential lending, and corporate finance.

Lenders use the DSCR primarily to determine whether or not to approve investment property mortgage loans.

The DSCR is also used for approving residential lending for home mortgages and mortgage refinancing. Finally, the DSCR is used in corporate finance as a measure of a company's ability to cover its total annual debt service, which includes interest and the current portion of long-term debt obligations.

In investment real estate, the debt service coverage ratio is the operating income generated by the investment property divided by its total debt service. The total debt service includes both interest and principal payments on the loan.

Calculating the DSCR for investment property mortgage loans Operating Income/Total Debt Service

Banks use the DSCR to help determine whether to make investment property loans or refinance mortgage loans. When a DSCR is greater than 1, it indicates that the debtor has enough income generated from the investment property to cover all his debt obligations. Banks generally require a DSCR of at least one for personal finance home mortgages or home mortgage refinancing, and 1.2 for investment property mortgage loans or investment property mortgage refinancing.

For investment property, the net operating income is the income generated from the property less its operating expenses. Operating expenses on investment property include repairs and maintenance, utilities, property insurance, and property taxes. Oftentimes the lender will add vacancy rates (e.g. 5% of the total operating income) and increased maintenance costs to arrive at a more conservative DSCR ratio.

DSCR in Investment Property Loans and Mortgage Refinancing Contracts An investment property loan contract may include a minimum DSCR requirement that must be maintained in order to
prevent the loan from going into default.

For home mortgages, the debt service coverage ratio is calculated by taking the income and expenses of the borrower.

In corporate finance the debt service coverage ratio is a measure of an entity?s ability to generate enough operating income to cover its total debt obligations. It is calculated by dividing operating income by total debt obligations, including principal and interest. This is similar to the interest coverage ratio, except the denominator includes all loan obligations (principal and interest) paid for the period, and not just interest payments.

Calculating the debt service coverage ratio Operating Income/interest + prior period current maturities on long-term debt

The sample income statement shows that Sunny paid $1,800 in interest on his loans for the period. Only interest expense for the period is shown on the income statement, and not current portions of debt.

Notice under current liabilities on the balance sheet in the examples of balance sheets section that the current portion of long-term debt coming due on the mortgage for land is $900, and the current portion coming due for the note payable on the company vehicle is $400. Since this amount was not paid yet, it is not included in the debt service coverage ratio. The amount that is paid is the amount coming due in the prior period, which in this case was zero for Sunny Sunglasses Shop since he had just started his business. The current portion of long-term debt due is paid next year, which is why the prior period current portion of debt is used when calculating the debt service coverage ratio for entities.

DSCR for Sunny Sunglasses Shop

This means that Sunny has 9.75 more operating income than total debt obligations for the period.

DSCR according to GAAP GAAP requires any capitalized lease obligations to also be included in the current portion of maturities when calculating the DSCR.

Sometimes the debt service coverage ratio is calculated by adding back non-cash expenses such as depreciation and amortization and other non-cash expenses.

DSCR = Annual Net Income + Amortization/Depreciation + other non-cash expenses/Total Debt Service. Though considered a cash basis DSCR, it does not take into account that many sales are made on account in the form of accounts receivable, or that many expenses are paid on account in accounts payable. This means that the company may be generating operating income, but not necessarily cash from operations, and may be paying expenses, but not using cash. To get a true cash basis DSCR, or cash available to cover total debt obligations for the period, the cash inflows from operations, available on the statement of cash flows, is divided by the total debt service for the same period.

A DSCR of less than one means that there is not enough operating income (or cash for cash calculations) to cover the debt service. For example, a DSCR of .95 means that the net operating income can only cover 95% of the total debt obligations. A lender generally would want a ratio higher than 1.2 for investment property mortgage loans or to refinance investment property.

A DSCR over one means that the company generates enough income to cover all of its debt obligations. The higher the ratio, the more income a company has available to cover its debt obligations.