Calculating DSCR - Posted by Andy

Posted by zach on March 19, 2006 at 18:45:06:

Net operating income is the income from a rental property left over after paying all of the operating expenses:

Gross Scheduled Rent $100,000
Less 5% Vacancy & Collection Loss $5,000

Effective Gross Income: $95,000
Less Operating Expenses
Real Estate Taxes
Repairs & Maintenance
Reserves for Replacement
Total Operating Expenses: $30,000
Net Operating Income (NOI) $65,000

Lenders always insist on some sort of vacancy factor regardless of the actual vacancy rate in an area to cover collection loss. In addition lenders always insist on using a management factor of 3-6% of effective gross income, even if the property is owner-managed. Their logic is that they would have to pay for management if they took back the property.

Calculating DSCR - Posted by Andy

Posted by Andy on March 19, 2006 at 11:40:13:

When calculating the debt service coverage ratio. Should I be substracting capital expenses from income when calculating the net income.

My lender requires a 1.2 DSCR.

A property I am looking at a has a DSCR over 1.2 without subtracting capital expenses but if I do subtract capital expenses it is below 1.2

How go lenders usually calculate this?

Re: Calculating DSCR - Posted by Don Dion

Posted by Don Dion on March 24, 2006 at 19:36:20:

Zach has a pretty good list going. There are also reserves for replacement depending on the property type they vary. Lenders use a national cap rate which also varies by property type. Expense Growth Rate. TI/LC (Tenant Improvement / Leasing Commisions) factor.