{"id":1389,"date":"2007-05-06T01:44:31","date_gmt":"2007-05-06T08:44:31","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=1389"},"modified":"2007-05-06T01:44:31","modified_gmt":"2007-05-06T08:44:31","slug":"so-bossyou-want-i-should-wacc-dis-guy","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1389\/so-bossyou-want-i-should-wacc-dis-guy\/","title":{"rendered":"So, Boss…You Want I Should WACC Dis Guy?"},"content":{"rendered":"

You know how lenders are. We’re always talking about WACC-ing a guy who borrows money. Do you REALLY know what we’re tawkin’ about, though?<\/p>\n

The Weighted Average Cost of Capital<\/a> or WACC, is a corporate finance term used to measure the true cost of debt. You can find that figure in any bank’s annual report, on the Sources and Uses of Funds Page<\/a>. They refer to it as a Cost of Funds.
\nIt’s a pretty simple analysis. I use WACC analysis to determine whether you should refinance your home loan.<\/p>\n

I can just WACC a property, I can WACC a certain person, I can even WACC your whole family if you want me to. Here’s how I would do it:<\/p>\n

Let’s assume this homeowner has a $210,000 first mortgage at 6%, a $60,000 second mortgage at 9%, and $30,000 in consumer debt at 12%.<\/em><\/p>\n

1- Add up all of your debt.<\/p>\n

$210,000 + 60,000 + 30,000 = $300,000<\/em><\/p><\/blockquote>\n

2- Determine what the percentage each loan is to the sum of all the debts.<\/p>\n

First mortgage= 70%, Second Mortgage= 20%, Consumer debt = 10%<\/em><\/p><\/blockquote>\n

3- Multiply the loan rate by that percentage for each loan.<\/p>\n

First Mortgage= 70% * 6.0= 4.2, Second Mortgage= 20% * 9= 1.8, Consumer Debt= 10% * 12= 1.2<\/em><\/p><\/blockquote>\n

4- Add up all of those figures. That’s your WACC<\/p>\n

WACC= 4.2 + 1.8 + 1.2 = 7.2%<\/em><\/p><\/blockquote>\n

Now, compare that WACC to the loan you could get to refinance those debts. If it’s lower than 7.2%, dat’s an offer you can’t refuse. Pretty simple, huh?<\/p>\n

Fuhgeddaboudit.<\/strong><\/p>\n

P.S.- I tried this earlier and<\/em> it seemed awfully confusing<\/a>. You can figure for after-tax WACC to be more accurate but this post is probably easier to understand<\/em>.<\/p>\n","protected":false},"excerpt":{"rendered":"

You know how lenders are. We’re always talking about WACC-ing a guy who borrows money. Do you REALLY know what we’re tawkin’ about, though? The Weighted Average Cost of Capital or WACC, is a corporate finance term used to measure the true cost of debt. You can find that figure in any bank’s annual report, […]<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,26],"tags":[],"class_list":{"0":"post-1389","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-investment","7":"category-lending","9":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":2831,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/2831\/the-real-estate-bailout-act-of-2008\/","url_meta":{"origin":1389,"position":0},"title":"The Real Estate Bailout Act of 2008","author":"Brian Brady","date":"March 24, 2008","format":false,"excerpt":"When successful financiers achieve a certain level of success, they up the ante and practice social engineering. 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