Bank DSCR Covenant

[Scott French]

Anyone ever have issues with their bank after not meeting their DSCR requirement?

I have a year one property where we got rid of multiple tenants and did some remodeling before filling back up with better tenants at higher rents. Because of the remodeling costs and short term vacancy, we may be just shy of the bank's required 1.2X, depending on what I can get away with adding back. (Legal fees related to eviction, appraisal, inspection were all one-time costs, and with these added back we are closer to 1.65x).

Since I am concerned about meeting the covenant, I am holding back some items as CAPEX on my balance sheet to avoid them hitting as expenses. This is obviously not ideal. I could always get it to the point where its exactly 1.2X and make adjustments in the next year when I have more cushion, but I'm thinking about talking to the bank and letting them know what exactly is going on, show them what the property is generating now, and take all the expenses this year for tax purposes.

Any insight greatly appreciated.