Income is fairly simple – take the income of the property (what you collect from your tenants whether it be office, retail or multi-family or industrial) subtract a vacancy factor (banks use a vacancy factor common to the product type and location) and that gives you a Gross Operating Income.

Expenses include items such as Property taxes, Insurance, maintenance, management, utilities and Reserves to name a few. Subtract your total expenses from your Gross Operating Income and that is your NOI.

From there banks use something called a DCR which stands for Debt Coverage Ratio which can vary depending upon location and risk factors. The higher the risk, the higher the DCR. Think of the DCR as kind of a buffer for the NOI and in essence will provide the lender a number they are confident the property will produce. The lender, especially in today’s environment, will be extremely conservative in their underwriting. In other words they will be very conservative with the income, probably use a higher vacancy factor than what the property actually has, will beef up the expenses to come up with a very conservative NOI.

From that point, the bank will use the revised NOI divided by the DCR and that will be the number they will be comfortable with that the property will produce to pay back a loan. They will essentially back into a payment and come up with a loan amount typically referred to as an LTV (Loan to Value) which again will vary on location and risk. Of course, lenders also look very closely to recent sales comparables and and rent comparables and will always have the property professionally appraised before deciding on a final loan amount.

This is a basic 101 explanation that hopefully gives you an idea. I recommend that you visit your local area banks and see if they will evaluate your property. You will find that if you go to three banks you will probably receive three different evaluations. Good Luck.