When you’re listing or selling an investment property, you’re not just selling real estate — you’re selling cash flow.
At KYCB Commercial Brokers, we always say the bank is the real buyer first.
If the numbers don’t work for financing, even the most motivated investor can’t close.
That’s why understanding Debt Service Coverage Ratio (DSCR) loans and how lenders underwrite commercial deals is key to pricing property that actually moves.
A Debt Service Coverage Ratio (DSCR) loan measures whether a property’s income can comfortably pay its debt.
Formula:
DSCR = Net Operating Income ÷ Annual Debt Service
Example:
If your property earns $120,000 per year and annual loan payments total $100,000 — the DSCR is 1.20×, meaning the income covers the debt with a 20% safety margin.
Banks typically require a minimum DSCR of 1.20×–1.25× on commercial real estate loans.
The higher your ratio, the easier it is for a buyer to finance the purchase — and the stronger your listing looks on paper.
When a buyer applies for a loan, the bank doesn’t care about your asking price — it cares about what the property can support in debt payments.
If your rent roll and expenses don’t justify the price at a 1.25× DSCR, the buyer will need a bigger down payment, or the deal won’t pencil out.
Example:
A property netting $60,000 per year supports about $720,000–$760,000 in loan amount at current rates (6.5–7%).
If you list it at $1 million, most lenders will require 25–30% down — instantly narrowing your buyer pool.
Price it based on actual DSCR, and you’ll attract qualified investors and close faster.
Underwriting isn’t mysterious — it’s math and risk management.
Here’s what every lender checks before giving a green light:
1. Net Operating Income (NOI):
They start with gross rents, subtract vacancy (often 5%), and deduct operating expenses — taxes, insurance, repairs, management, and utilities.
2. Debt Coverage:
They test your NOI against loan payments. If the DSCR falls below 1.20×, they’ll reduce the loan amount or reject the deal.
3. Lease Stability:
Long-term, creditworthy tenants with NNN or Modified Gross leases help you command a higher price. Vacant or short-term leases reduce financing strength.
4. Market Conditions:
Banks analyze your local market — comparing rent levels, vacancy rates, and property type demand — to confirm your numbers make sense for Central Kentucky.
At KYCB, we reverse-engineer every listing with a DSCR-based underwriting model before it goes to market.
We calculate what a bank will lend, what investors can expect for cash-on-cash returns, and what price point makes the deal bankable.
That’s how listings move — not sit.
Example:
If your property produces $80,000 NOI and buyers are financing at 7% with 25% down, your optimal listing range may land near $900,000–$950,000.
Price it at $1.2M, and most investors won’t make it past the first phone call.
In today’s market, bank underwriting defines value.
Understanding DSCR loans isn’t just for lenders — it’s how smart sellers and brokers set realistic pricing and position assets to close.
At KYCB Commercial Brokers, we specialize in underwriting-driven pricing strategies that make your property bankable before it ever hits the market.
That’s how you go from listed… to sold.