In this instructional video, Shafiq Hirani, MBA, CCIM, explains that the Debt Service Coverage Ratio (DSCR) is the single most important factor determining the size of a refinance loan, often outweighing the building's appraisal value. He defines DSCR as net operating income (NOI) divided by annual mortgage payments, illustrating with a 1.25 DSCR example (NOI $275,200 / payments $220,160). Lenders typically require a minimum DSCR of 1.25; if a property falls below, the loan amount is reduced until the ratio meets the floor. Hirani shows that the coverage test frequently limits loan size more tightly than the appraisal‑value test, using a case where the appraisal allowed $3.18 M but the coverage test capped the loan at $2.72 M. He explains that at a 1.25 coverage ratio and a 25‑year amortization, each $1,000 of defendable NOI translates to roughly $10,000 of borrowing capacity, meaning income reductions directly shrink cash‑out amounts (e.g., a $38,400 income haircut cost $900,000). The video urges owners to calculate their own DSCR, share results for feedback, and use the Refinance Navigator Checklist to compute DSCR with lender assumptions. The content ends with a teaser about why apartment appraisals often fall short of owner expectations.
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If you are heading into a refinance and you could not confidently tell me your DSCR right now, I have a solution. Because this one number decides how much you get, and it does it before anyone even looks at your building. I'm Shafiq Hirani, MBA, CCIM. I came into this business with an engineering background, so let me say it plainly: this number is not complicated. But it is also not negotiable. If this is useful, a like and a subscribe help me keep making it. Let's get into it. DSCR stands for Debt Service Coverage Ratio. Strip out the jargon and it is one question: if I hand you this loan, can the building comfortably make the payments? You take your net operating income and divide it by your annual mortgage payments. If the lender says the building produces $275,200, And the mortgage costs $220,160 a year, your DSCR is 1.25. For every dollar going out to the bank, $1.25 is coming in. Most lenders want 1.25 as a floor. Below that, they do not renegotiate with you. They shrink the loan until the coverage works. That is not a conversation. That is a formula. Here's the part that costs owners real money. Most people assume the loan is sized off the building's value, 75% of what it appraises for, and sometimes that is the binding constraint. But very often the coverage test binds first, and it binds tighter. On the building from the last video, the value test allowed $3.18 million. The coverage test allowed $2.72 million. The lender takes the lower number, which means Your loan is not really a function of what your building is worth. It is a function of what your building earns in the lender's version of the numbers divided by 1.25. So if you want a bigger loan, there is really only one input that moves, and it is not the appraisal. It is the income the lender uses. At 1.25 coverage and a 25-year amortization, every $1,000 of net operating income you can defend is worth roughly $10,000 of borrowing capacity. That is the multiplier, and it runs in both directions. DSCR turns every dollar of income into about $10 of loan, which is exactly why that $38,400 income haircut cost the owner $900,000 in cash-out. If this made the math clearer, hit like and subscribe. It is the fastest way to get this in front of owners who need it. And run your own DSCR right now. Net operating income divided by your annual payments. Put the number in the comments and I will tell you honestly where you stand. The Refinance Navigator Checklist walks you through calculating it with the lender's assumptions instead of your own. Link below or scan the code. Next, why apartment appraisals come back lower than owners expect and what you can actually do about it.
