Real Estate Investor · Member since 2008 · 34 posts · 3 votes
How is it that four different local bankers (two within the same bank) can come up with different DSR? Are they factoring in utilities for both personal and potential vacant rentals? Personal/work vehicle payment? All piti on personal and rentals? One says 20% off the top of market rent and another 25%. How do they account for the two paid in full properties that are just unimproved waiting for repair and to be rented? Only one bank requested the market rent amount after the improvements. They really don't tell you how they arrive at this figure and every single thing they factor. How do we know? I've heard... 1.2, 1.25, 1.3 & 1.9 which is an extreme difference. I'm so sick of banks, I could just scream.
WHO CARES? (sorry to be so sarcastic) You're making this WAY TOO COMPLICATED! If you find a great deal, take it to your bank and they will finance it. The DSR/DSCR will take care of itself. If your deal is so thin that you need to worry about how the DSR/DSCR is calculated, you need to find a better one!
I have bought dozens of rentals and have never had a banker even mention DSR/DSCR or any of that other gibberish. Why? Because I only take GREAT deals to the bank. I'm sure that they calculate these numbers as they are doing their silly paperwork, but I know before I ever go to the bank that it will be fine. I also take in a complete package the first time I go to the bank. That includes a complete rent roll and cash flow analysis so that the bank never has to ask me for any additional information. They invariably tell me the loan is approved on my initial visit and then it's just a matter of waiting a couple of weeks for all the paperwork, appraisal, etc to be done.
My advice is to forget the DSR/DSCR along with cap rate, IRR, etc! Get back to basics.
To actually answer your question, it is because DSCR is calculated using the NOI which can be several different numbers depending on the person inputting the info.
Example, some investors would consider operating expenses only vacancies, taxes, insurance and property management. That would make a much higher (but incorrect) NOI as they would be leaving out utilities, evictions, legal costs, advertising, payroll, etc. etc. etc.
Bottom line, if you calculate true and accurate NOI figures as you should, then yoour NOI will be accurate enabling you to accuratley calculate your DSCR. If you are working a good enough deal as Mike mentioned, you will be fine and should be well above the required minimum from your bank regardless of how they calculate it.
I only have a second. It's obvious that this loan isn't just about one single property. This is for multiple properties. I care Mr. Mike or I wouldn't be asking. I've had to write down instructions for one banker on how to utilize his hp12, one had NO clue on dsr after asking him since the last three acted like it was such a big deal. It's just a bunch of extra planning they are trying to push around since the market is different. In time it'll fade but until then I just deal with it. This is the first time in 12ish years, I've dealt with gibberish. This is for a line of credit for dozens of SFR and a complete new relationship. Some of these guys don't even have internet banking. It's like playing cowboys & indians.