Debt
What a Lender Actually Looks At In Your Rent Roll
Not the total. Six things, and most borrowers are surprised by which ones matter.
Borrowers send a rent roll and expect the lender to look at the bottom line. Lenders look at six other things first, because their downside is not your downside, they are underwriting the income that survives, not the income that exists.
1. Rollover inside the loan term
The first thing a credit officer marks. If forty percent of your income expires before the loan matures, the loan is not really secured by the current rent roll. Expect a reserve, a lower proceeds number, or both.
2. Concentration
What share of income comes from the largest tenant? Above thirty percent and the loan starts being underwritten as a single-tenant credit. Above fifty and some lenders will simply price it that way, whatever the property looks like.
3. Which rents are actually in place
Signed leases where the tenant has not yet opened, tenants in free rent periods, and month-to-month holdovers all appear on a rent roll and none of them are stabilized income. Lenders haircut or exclude them.
4. Trailing collections against the roll
The rent roll says what tenants owe. The operating statements say what they paid. A gap between the two is a credit-loss assumption, and the lender will apply theirs, not yours.
5. Debt yield
Net operating income divided by the loan. It ignores rate and amortization entirely, which is precisely why it became the post-2008 backstop, a low rate cannot flatter it. Ten percent is a common floor and on a tight deal this test binds before DSCR or LTV does.
6. The expense build
Lenders re-underwrite your expenses. They impute management if you self-manage, add a replacement reserve if you left one out, and adjust taxes for reassessment on sale. The NOI they lend against is frequently five to ten percent below the one you submitted, which is the real reason proceeds come back light.
The practical takeaway
Run the lender's version before you apply. If your own model already imputes management, reserves and reassessed taxes, the number that comes back will not surprise you, and you will know in advance which of the three sizing tests is binding, which is what you should actually be negotiating.
Run their version: Loan sizing tests DSCR, LTV and debt yield together and names the constraint that binds.
Related notes
How to read this. These are working notes. Figures come from public reporting and from the models on this site, and market conditions change, check anything time-sensitive against the source before you rely on it. Nothing here is investment, tax or legal advice, and no note is a substitute for diligence on a specific property.
Built with the underwriting model on this site. How it compares with the licensed product.