Debt Service Coverage Ratio
Whether rental income covers the loan payments.
Formula
Live Calculator
MembersVariables
Example
NOI=$30k, debt=$24k: DSCR = 1.25
How it works
Debt Service Coverage Ratio (DSCR) compares the money a property produces before financing costs to the amount needed each year to pay the debt. It works because lenders want to know whether the property generates enough operating cash flow to comfortably cover loan payments; a DSCR above 1 means income exceeds debt service, while below 1 means the property is not generating enough to pay the debt from operations alone.
When to use it
Use this when evaluating a rental property loan, refinancing an investment property, or checking whether a building can support a mortgage. It is especially useful for lenders and investors who want a quick measure of repayment capacity from property income.
Worked example, step by step
Step 1: Identify net operating income (NOI) = $84,000 per year Step 2: Identify annual debt payments (D) = $60,000 per year Step 3: Plug into the formula: DSCR = NOI / D Step 4: DSCR = 84,000 / 60,000 Step 5: DSCR = 1.40 Final answer: DSCR = 1.40, meaning the property generates 40% more income than needed to cover annual debt payments.
Common mistakes to avoid
- Using gross rent instead of net operating income
- Including taxes, depreciation, or owner salary in NOI
- Confusing monthly loan payments with annual debt payments without matching the time period
Did You Know?
Commercial lenders typically want a DSCR of at least 1.25 — a 25% income cushion over the repayments.
Share this formula
More in Real Estate & Mortgages
View allMortgage Monthly Payment (EMI)
IntermediateFixed monthly repayment on a mortgage.
Loan-to-Value Ratio
BasicLoan size as a percentage of property value.
Capitalisation Rate
IntermediateAnnual return on a property from net operating income.
Gross Rental Yield
BasicAnnual rent as a percentage of property price.
Net Operating Income
BasicRental income minus operating expenses.
Price per Square Metre
BasicProperty price divided by floor area.