North Carolina Commercial Property Loans

How to Determine Debt Service Coverage Ratio (DSCR) for Properties in North Carolina

Why is Debt Service Coverage Ratio or DSCR the standard bearer for most commercial real estate investors in North Carolina? Because, when an investor in Charlotte, North Carolina needs to determine the value of commercial real estate property, the Debt Service Coverage Ratio (DSCR) is the most reliable calculation after the Net Operating Income (NOI) has been verified by the historical income statement and signed rent roll confirmed by the tenants.

We at Trim Financial predominantly rely on DSCR, or Debt Service Coverage Ratio, for calculating loan amounts and value as collateral when underwriting a commercial real estate mortgage loan. When an investor in North Carolina attempts to finance a commercial real estate property in Huntersville or Pineville, the business bank or private commercial real estate lender will examine the Debt Service Coverage Ratio or DSCR to see if the apartment building or warehouse will generate enough cash to cover the debt service or mortgage payments of the commercial real estate property located in North Carolina.

Trim Financial will help guide the commercial real estate investor in North Carolina to calculate sufficient current DSCR or Debt Service Coverage Ratio and future projections to “cover” the debt service or mortgage.

Trim Financial, as your commercial real estate loan expert, will confirm whether your North Carolina investment property will support the loan payments necessary for a 1.25 Debt Service Coverage ratio or DSCR. DSCR calculation is determined by applying the Annual Net Operating Income (NOI) and dividing the NOI total by the Annual Debt Service (commercial loan payment multiplied by 12 months) which in turn will provide a benchmark for the valuation of the income-producing property, from Mecklenburg County to Catawba County.

A commercial real estate investor in North Carolina will need to understand how to calculate NOI, or Net Operating Income in order to determine the DSCR or Debt Service Coverage Ratio. The NOI or Net Operating Income is calculated by taking the Annual Gross Rents less the Vacancy and Credit Loss and subtracting the total Operating Expenses. The GOI or Gross Operating Income is calculated as if all the units are rented in an apartment building in Charlotte, North Carolina. However, the vacancy factor of 6% – 10%, depending on which rental neighborhood or commercial property market, whether in Matthews or Raleigh, needs to be considered and subtracted along with operating expenses to determine the more realistic Net Operating Income generated currently by the commercial real estate property located in the Tar Heel State.

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