Shafiq Hirani CCIMReal Estate Advisor, REMAX Distinctive · Real Estate Advisor at RE/MAX Distinctive Commercial | Washington, DC | Your Guide To Profitable Real Estate Ventures

Unlock More Loan: It's About Income, Not Appraisal! #shorts

22 Jul 2026 · 1 min

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In this short, the speaker explains that commercial real‑estate loan amounts are not primarily set by the property’s appraised value. Lenders apply two tests – a value test (typically 75% of the appraisal) and a debt‑service‑coverage (DSC) test. The loan is sized at the lower of the two. In the example shown, the value test would allow a $3.18 million loan, but the DSC test only permits $2.72 million, so the coverage test binds. The DSC test is calculated by dividing the lender‑approved net operating income (NOI) by a coverage ratio of 1.25, then amortizing over 25 years. Consequently, each $1,000 of defendable NOI translates to roughly $10,000 of borrowing capacity. The key takeaway is that to increase loan size, borrowers must focus on boosting the income figures used by the lender, not on raising the appraisal.

Chapters

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.