Answers

Straight answers to what borrowers ask us before a first call.

• What debt service coverage ratio do lenders require on an apartment loan? Debt service coverage ratio is your annual net operating income divided by your annual debt service. Lenders set a floor above 1.00 on stabilised multifamily, so the property still pays the loan if income dips — the exact floor varies by lender, property type and market, and it moves with conditions. The number that matters is not the one you calculate; it is the one the lender calculates after adjusting your figures.
• What a lender does to your net operating income A lender does not accept the net operating income on the offering memorandum. It reunderwrites four lines — vacancy, property tax, management fee and replacement reserve — and each one is defensible on its own. Together they routinely move the loan by several hundred thousand dollars on a deal in the one to five million band.
• What is debt yield, and why did my lender mention it? Debt yield is your property's net operating income divided by the loan amount, written as a percentage. It answers one question — if the lender foreclosed tomorrow, what cash return would the property give them on the money they lent? Unlike coverage and loan to value, it ignores the interest rate, the amortisation and the appraisal, so it cannot be flattered by cheap debt or a generous valuation.