DSCR Calculation...including your living expenses?

[Peter Tverdov]

I searched but didn't find much on this topic. As some background, I have been speaking with a commercial lender for 6 weeks (which is ridiculous) and waiting for feedback from underwriting on my global cash flow so I can get a commercial loan on one property. I am currently rehabbing this property using hard money. The property is vacant but will be occupied come June (student rental).

They told me today that they project ones living expenses and add that into debt service of all of the rental properties to determine your global cash flow. They also told me they look at tax returns and do not subtract back out any write offs used like depreciation. So if your Schedule E shows a loss, they take that as your rentals PnL.

To qualify for a commercial property, my understanding was:

Rental Income

(Operating Expenses)

_____________

NOI

NOI/P&I = DSCR

Adding in someones "projected living expenses", what on earth does that have to do with the commercial property and whether the income can service the debt? This seemed cuckoo for cocoa puffs to me but wanted to get some feedback from the BP community. The irony is that if I went to a conventional lender, I'm a slam dunk to qualify without any problems. I think I ran into someone who doesn't know what they're doing but I'll hang up and listen now. 

[Ken Jernigan]

Again, most lenders use global because you can take the cash flow from the property and use it however. So they want to know you have sufficient cushion to meet other obligations as well as the proposed debt. You do need to show other sources of income than the subject property, such as spouse's employment, other income properties, investments, etc.

There are stated income lenders who are more lenient, but LTVs are low and rates are high.