This may have been covered already but I was not able to find exactly what I was looking for in the forum. I've been in commercial lending about a year now...

My quesiton is:

I'm underwriting an S-Corp with the owner of the business (100% ownership) owning real estate that he rents to the business (he files a Sch. E reporting the rental income from the business). For debt service coverage purposes, should the rent expense be added back to cash flow?

I've only come accross a few instances where the rent expense should be added back to cash flow but I can't remember when to do it. If my situation does not require adding back the rent expense please provide examples of when I should be adding it back.

Thanks, Jeff

Well Jeff…………….. It depends.

You can add it back just make sure that all the expenses and debt service associated with the property are accounted for.

On the other hand, the owner might need that money to live so it is better to do a global in that case.



What are you financing anyway? If it is the building then yes add it back.

Thanks for responding, we are financing working capital LOC. I'm going to do a combined cash flow analysis so my thought is that I should not add back the rent because it would be double counted.