In this four‑minute instructional video, Shafiq Hirani, MBA, CCIM, explains why apartment owners typically overestimate the cash they can pull out in a refinance. He walks through a concrete example of a 12‑unit building with $480,000 gross rents, $152,000 expenses, and a 3% vacancy rate, arriving at a $313,600 NOI and a $4.8 million value (6.5% cap). Using the common owner approach (75% LTV) the owner would expect a $3.6 million loan and $1.2 million cash‑out after paying off a $2.4 million balance. Hirani then shows how lenders rebuild the income: they increase vacancy to 5% and add a 6% management fee, reducing NOI to $275,200. The lender applies a 1.25 Debt Service Coverage Ratio (DSCR) to this adjusted NOI, yielding a maximum annual mortgage payment of $220,160, which translates—at 6.5% interest and 25‑year amortization—to a loan of about $2.72 million. Because lenders always use the lower of the “value test” (LTV) and the “coverage test” (DSCR), the actual loan is $2.72 million, giving the owner only roughly $320,000 cash‑out, far less than the $1.2 million expected. Hirani also notes that the loan’s amortization (25 years) exceeds its term (typically 5 years), meaning owners will face the same refinancing conversation multiple times over the building’s life. He urges owners to understand the lender’s math early, use the 1.25 DSCR figure as a key lever, and provides a “Refinance Navigator Checklist” for running the lender’s calculations themselves.
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If you own an apartment building and you have been quietly doing the math on how much cash you could pull out in a refinance, I have a solution. Because I can almost promise you the number in your head is not the number you are going to get. And the reason why is fixable if you catch it early enough. I'm Shafiq Hirani, MBA, CCIM. I found that most apartment owners are sitting on far more wealth than they realize. But nobody ever showed them how lenders actually decide what to hand over. Let me walk you through the exact math right now in about 4 minutes. One quick ask before I start. If this helps you, hit like and subscribe. That is what puts this in front of other owners who are about to walk into the same conversation. All right, let's get to the numbers. Take a 12-unit building, gross rents of $480,000. Your operating expenses are $152,000 and you are running at about 3% vacancy because the building is full. That puts your net operating income at $313,600. Apply a 6.5% cap rate and your building is worth about $4.8 million. The lender goes to 75% of that, so you are looking at a loan of around $3.6 million. You owe $2.4 million. Cash out of roughly $1.2 million. That is the math almost every owner does. And it is not that the arithmetic is wrong, it is that the lender will never use your numbers. The lender rebuilds your income from scratch. You used a 3% vacancy rate because that is what the building is running at. They use 5% because they have to underwrite a normal year, not your best year. And you have no management fee because you self-manage. They add one anyway at 6% of gross rents because they have to assume the next owner would pay one. Those 2 adjustments take your income from $313,600 down to $275,200, a $38,400 haircut before anyone has walked through your building. Now here is the part that actually sets your loan. The lender takes that $275,200 and divides it by 1.25. That is their Debt Service Coverage Requirement, DSCR, and I will break it down fully in the next video. What it gives them is the maximum annual mortgage payment your building can carry. In this case, $220,160. Then they work backward from that payment to a loan size. At 6.5% on a 25-year amortization, $220,160 a year supports a loan of about $2.72 million. And notice what just happened. The Value Test would have allowed $3.18 million. The Coverage Test allows $2.72 million. The lender takes the lower number every single time. So your loan is $2.72 million. You owe $2.4 million. $7.2 million. You owe $2.4 million. Your actual cash out is about $320,000. You were counting on $1.2 million. You were getting $320,000. That is a 9— all of it came from the difference between your income statement and theirs. And one detail most owners miss entirely. That loan is amortized over 25 years, but the term is only 5 years. Some lenders go 7, a few go 10, which means you are back at this exact table before the loan is even a fifth paid down. So this is not a one-time conversation. This is a conversation you will have 4 or 5 more times over the life of that building. Getting it right now is not just about this refinance. Your cash-out number is not set by what your building is worth. It is set by what the lender says your income is divided by their coverage requirement. Find that number before they show it to you and you still have time to move it. If this was useful, like it and subscribe. It genuinely helps other owners find it before they are sitting across from a lender. And I want to know, what number were you expecting to pull out? Put it in the comments. I read every one and I will run the real math on a few of them in a future video. If you want to run your own building through the lender's math rather than yours, the walkthrough is in the Refinance Navigator Checklist. Link is below or scan the code on screen. That 1.25 number is the single most powerful figure in your entire refinance. Next video, I break it down completely.
