… Show Me the Money: What to Expect and How to Structure Your Financing for Approval
One of the most common questions I hear from clients diving into commercial real estate is, “How much NOI do I need to qualify?” And honestly, it’s a great question — but the answer isn’t as simple as hitting a magic number. In the world of commercial lending, Net Operating Income (NOI) doesn’t exist in a vacuum.
Lenders aren’t just looking at your NOI as a dollar figure; they’re looking at how it lines up with the debt you’re asking for. They want to know if your property can comfortably carry its own weight — not by scraping by, but by clearing its debt obligations with some room to breathe. That breathing room? It’s measured by something called the Debt Service Coverage Ratio (DSCR).
Let’s break this down so you know exactly what lenders expect, how to structure your deal to fit, and how to avoid surprises down the road.
What I’m Covering:
What Is NOI and Why Lenders Care So Much About It
Typical NOI Expectations by Property Type
How to Structure Your Financing to Hit the Right Numbers
How You Can Use This Knowledge to Your Advantage
What Is NOI and Why Lenders Care So Much About It
First, a quick refresher: NOI is your Net Operating Income — the income your property generates after operating expenses but before mortgage payments and taxes.
Commercial lenders love NOI because it tells them whether the building itself is a good bet. Unlike residential deals, where your personal income does the heavy lifting, in commercial real estate, the property’s income is king. If the NOI is strong and stable, lenders are happy. If it’s thin or inconsistent, they start getting nervous — and nervous lenders don’t approve big loans.
How DSCR Connects to Your NOI
Here’s where it gets real: lenders don’t just want to see a decent NOI. They want to see how that NOI stacks up against the annual debt payments you’ll owe them.
That’s where DSCR (Debt Service Coverage Ratio) comes in. It’s the simple calculation lenders use to figure out how comfortable your cash flow really is:
NOI ÷ Annual Debt Payments = DSCR
Most lenders want to see a DSCR of at least 1.20 to 1.25. That means your property is earning 20% to 25% more than it needs to cover its mortgage payments.
If you’re looking at $100,000 a year in debt payments, your NOI should be at least $120,000 to $125,000. If your NOI doesn’t clear that bar, the lender will either reduce the loan amount or walk away from the deal.
Typical NOI Expectations by Property Type
Different properties carry different levels of risk, and lenders adjust their expectations accordingly. Here’s a general idea of what they want to see:
| Property Type | Typical DSCR Requirement | NOI Target vs. Debt Payments |
| Multi-Family (Stable Markets) | 1.20 – 1.25 | 20% to 25% over debt payments |
| Office / Retail (Strong Tenants) | 1.25 – 1.30 | 25% to 30% over debt payments |
| Industrial (Reliable Tenants) | 1.20 – 1.25 | 20% to 25% over debt payments |
| Specialty Assets (Hotels, Self-Storage) | 1.30 – 1.40 | 30% to 40% over debt payments |
The stronger the property type, tenants, and market, the more flexibility you might have. The more specialized, vacant, or unpredictable the asset, the more cushion lenders want.
How to Structure Your Financing to Hit the Right Numbers
If your NOI isn’t quite where it needs to be, don’t panic. There are ways to tighten up your deal to make it lender-friendly:
Increase Your Down Payment
Less debt = smaller payments = better DSCR.
Stretch the Amortization
Longer amortization periods reduce annual payments, improving your DSCR.
Boost NOI
Raise rents to market rates, fill vacancies, cut unnecessary expenses. Small changes can make a big impact.
Use Realistic Numbers
Lenders won’t approve based on future dreams. Present stabilized, verifiable income and expenses.
The goal? Show a lender that this property is a solid, cash-flowing asset that doesn’t need hand-holding.
How You Can Use This Knowledge to Your Advantage
Let’s say you’re buying a $2 million industrial building and looking to borrow $1.4 million. At 6% over 25 years, your debt payments are around $108,000 annually.
Your NOI target? Somewhere between $130,000 to $140,000.
If you’re only clearing $110,000? Time to:
- Increase your down payment
- Stretch the amortization
- Boost NOI through better tenants or expenses
Or maybe you’re refinancing a multi-family building. You:
- Increase rents to market
- Lock in solid tenants
- Clean up financials
Now your NOI supports a higher loan and better terms.
The more you align your numbers with lender expectations, the smoother the process and the better your terms.
Allen’s Final Thoughts
When it comes to commercial financing, NOI is your ticket in the door, and DSCR is your seat at the table. Lenders aren’t just looking for a number that sounds good on paper — they’re looking for cash flow that keeps the property, and the borrower, stable through good times and bad.
The better you understand how these numbers work together, the more control you have over your financing. Preparation beats surprises every time.
And that’s exactly where I come in.
How I Can Help
As your mortgage agent, I’m here to help you run the numbers, structure your deal properly, and position it for lender approval. I’ll help you:
- Evaluate your NOI and DSCR upfront so there are no surprises
- Fine-tune your strategy to meet lender expectations
- Connect you with the right lenders for your property type
- Package your deal professionally so lenders say “yes”
- Negotiate terms that protect your cash flow and long-term goals
Whether you’re buying, refinancing, or expanding your commercial portfolio, I’m here to help you make smart moves with confidence and clarity.
Let’s talk about your next deal — and how to structure it for success right from the start.
