Pm costs in Debt Coverage Ratio?

[John Suralik]

I had a meeting with a loan officer from a small local bank. They do portfolio lending and I was sharing my past projects and my future plans. He calculated my debt coverage ratio for one of deal I'm looking at and he calculated it at 1.43. I gave him a detailed spreadsheet on the deal, which included a 12% cost line for property management. My question is should I include property management costs in my expenses for the bank because it is included in my NOI, or omit the costs for the debt coverage ratio? I'm reading Frank Gallinelli's 36 Key Financial Measures and he doesn't state PM expenses as costs in the chapter on DCR and I notice that a lot of deal analysis spreadsheets don't include PM expenses when making specific calculations. In the end, I just want to make sure that I'm using the correct numbers in my calculations when I'm talking to bankers, or comparing deals with other investors.

[Patrick Liska]

The way i see it, if you manage the property or a PM does, one of you has to get paid for that time. that is a cost associated with the investment property and should be part of the expenses that give you your NOI. Managing an investment property is something that is done to keep up the property and run the investment, yes its a business expense but an expense only for that property and the cost of it associated with that property.