Start with an investor-owned building that produces rent. For apartments, that means five or more units. For other property, it means a commercial building: retail, industrial, office, mixed-use, or a property the operating business occupies. A.R.S. 6-901 defines commercial property as real property that is not a residential dwelling of one to four units. This page stays on that commercial side of the line. It is not a loan on a house. The statute is a scope marker, not legal advice about a particular deed.
Coverage is a sizing test, not a brand name. Net operating income is what is left after operating expenses and before debt. Divide it by the annual principal and interest, or by interest only if that is the payment in force. A result above 1.00 means income exceeds that payment. How far above 1.00 a lender wants is that lender's rule, and it can change with the property type, the leverage, and the sponsor. We will not print a Capital Market Funds minimum, because we are not the lender.
The national note on what people mean by a workable ratio is what is a good DSCR. Use it for the idea. Use this page when the building is in Arizona and you want the loan arranged. The DSCR calculator and the rates and loan calculator both run on figures you type. They do not look up a hidden Arizona rate.
What to put in the income number
Lenders rarely accept the sponsor's NOI without a change. Vacancy, management, taxes, insurance, and reserves are the usual adjustments. A trailing statement and a rent roll are the file. A pro forma that assumes tomorrow's rents is a story, and the lender will say whether it may be used. Send both if you have them, and label which is which.
An interest-only payment makes the ratio look higher because the denominator is smaller. Ask whether the test uses today's payment or the amortizing payment that starts later. That question is written up on the interest-only page. Debt yield, income divided by the loan amount, ignores the rate. Some lenders use it so a low coupon cannot inflate proceeds. The calculator can run that test when you type a yield. We do not publish a required yield either.
Which Arizona loans are actually sized this way
Permanent loans on leased property are the ordinary DSCR conversation: life company, a bank, CMBS, and agency apartments when the community is five or more units. Bridge on a vacant or renovating building often cannot show the coverage a permanent lender wants today. That is a reason to use bridge, not a reason to type a future NOI into a permanent test and call it current.
Owner-occupied commercial property can be sized on the business as well as on rent, especially when an SBA lender or a bank is the hold. That is a different underwriting stack, and this firm is not an SBA lender or a CDC. If the operating company occupies the building, say so at the start. If unrelated tenants pay the rent, say that too. Mixing the two stories is how files stall.
Nothing here is a rate. Nothing here is a promise that clearing a typed ratio closes a loan in Phoenix, Tucson, or anywhere else in the state. The statewide refinance path, when a note is already on the building, is Arizona commercial refinance.
Arizona commercial DSCR market context
- Commercial property in the statute
- A.R.S. 6-901 defines commercial property as real property that is not a residential dwelling of one to four units. This page follows that line and does not describe a loan on a house. Arizona Legislature, A.R.S. § 6-901
What an Arizona commercial DSCR file usually needs first
These items let a lender test coverage. They are not an approval checklist.
Rent roll
Who pays, the rent, and when each lease ends. Apartment unit mix if the collateral is five or more units.
Trailing income and expenses
A recent twelve months, labeled as actual. A pro forma should be marked as a projection.
Taxes and insurance
The amounts the lender will put in expenses, not last year's guess.
The payment you are testing
Interest-only or amortizing, and the rate you typed. We do not supply the rate.
Loans that are sized from commercial coverage
| Source | When it fits |
|---|---|
| Life Company | Stabilized Arizona income property when an insurance company will hold the senior loan and run its own coverage test. |
| Bank | A portfolio commercial loan, including some owner-occupied buildings, under the bank's coverage rule. |
| CMBS | A conduit loan when proceeds are the issue and the rent roll can survive that coverage and prepay structure. |
| Fannie Mae | Apartments of five or more units only, placed with the lender that executes Fannie Mae. Not a DUS claim. |