DSCR Calculator

What is DSCR?

The Debt Service Coverage Ratio (DSCR) is a key financial metric used by lenders to measure a borrower's ability to repay a loan. In real estate investing and commercial lending, it compares an investment property's Net Operating Income (NOI) to its debt obligations.

The Formula

The formula is simple:

DSCR = Net Operating Income (NOI) / Total Debt Service

• NOI: Revenue remaining after all operating expenses (taxes, insurance, maintenance, management) have been paid, but before mortgage payments.
• Debt Service: The total amount of principal and interest payments due on the loan for a specific period (usually one year).

Interpreting the Ratio

• DSCR < 1.0: Negative cash flow. The property does not generate enough income to cover the mortgage. The borrower must pay out of pocket.
• DSCR = 1.0: Breakeven. Income exactly matches the debt payments.
• DSCR > 1.0: Positive cash flow. The property generates profit after paying the debt.
• DSCR ≥ 1.25: Preferred by Lenders. Most commercial banks require a minimum DSCR of 1.20 to 1.25 to approve a loan, ensuring there is a "cushion" for vacancies or unexpected expenses.

Why Lenders Care

Lenders use DSCR to assess risk. A higher ratio means lower risk. If a property has a DSCR of 1.50, it generates 50% more income than is needed to pay the mortgage, making it highly likely the loan will be repaid even if market conditions worsen.