Tag: Liabilities

Liabilities are obligations a person or company has to another person or institution. They represent money or services the person or company owes and must pay back. Liabilities can be incurred to purchase goods and services, refinance or borrow money, or handle legal settlements. Examples of liabilities include credit card debt, loans, mortgages, taxes, legal judgments, and wages. To stay financially healthy, individuals and businesses must properly manage their liabilities by making payments in a timely manner, negotiating debt repayment plans, and avoiding excessive borrowing.

Ratio

Understanding Liabilities to Equity Ratio in Multifamily Property

Understanding Liabilities to Equity Ratio in Multifamily Property
5 min read

investment

A key measure of financial performance used by multifamily property investors is the liabilities-to-equity ratio. This ratio identifies the percentage of total assets that are financed by debt and the corresponding percentage of total assets that are financed by owner’s equity. In general, residential multifamily investment properties that have a higher liabilities-to-equity ratio will be leveraged more heavily than those with a lower ratio. For investors, this means that more of the returns generated by the investment are likely to come from loan interest payments rather than from profit resulting from changes in the property’s value. A high liabilities-to-equity ratio also means that investors have more risk of losses due to lack of equity cushion in the event of an economic downturn. It is important for investors to review the liabilities-to-equity ratio when considering multifamily property investments.