Real Estate & Mortgages

Intermediate

Debt Service Coverage Ratio

Whether rental income covers the loan payments.

Formula

DSCR = \frac{NOI}{D}

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Variables

DSCRCoverage ratio

NOINet operating income

DAnnual debt payments

Example

NOI=$30k, debt=$24k: DSCR = 1.25

Did You Know?

Commercial lenders typically want a DSCR of at least 1.25 — a 25% income cushion over the repayments.

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