Transparent method
The formula
Worked example
Example inputs
How to interpret the result
DSCR measures the cushion between a property's income and its debt payments specifically, which is the number a lender cares about because it answers whether the property itself can service its own debt. A property can be a genuinely good investment on other measures and still fail a lender's minimum DSCR threshold if the leverage is aggressive enough.
Before you rely on it
What to check
Confirm which income and expense figures your lender's DSCR calculation actually uses, since conventions on what counts as income and expense can vary between lenders.
The common error
Where people go wrong with DSCR calculator
Assuming a property's overall profitability automatically satisfies a lender's DSCR requirement. A profitable property financed aggressively can still fail a DSCR threshold even though the underlying investment looks sound on other measures.
Sensitivity evidence
How annual net operating income changes the debt-service coverage ratio
| Annual net operating income | Debt-service coverage ratio | Cash flow after debt service |
|---|---|---|
| $28,800 | 1.03× | $800 |
| $32,400 | 1.16× | $4,400 |
| $36,000worked example | 1.29× | $8,000 |
| $39,600 | 1.41× | $11,600 |
| $43,200 | 1.54× | $15,200 |
Every input, tested
Which input moves the debt-service coverage ratio most
| Input | Tested from | To | Debt-service coverage ratio at each end | Swing |
|---|---|---|---|---|
| Annual debt service | $25,200 | $30,800 | 1.43× to 1.17× | 0.26× (20%) |
| Annual net operating income | $32,400 | $39,600 | 1.16× to 1.41× | 0.26× (20%) |
Two variables at once
Debt-service coverage ratio by annual net operating income and annual debt service
| Annual net operating income \ Annual debt service | $22,400 | $28,000 | $33,600 |
|---|---|---|---|
| $28,800 | 1.29× | 1.03× | 0.86× |
| $32,400 | 1.45× | 1.16× | 0.96× |
| $36,000 | 1.61× | 1.29× | 1.07× |
| $39,600 | 1.77× | 1.41× | 1.18× |
| $43,200 | 1.93× | 1.54× | 1.29× |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Annual net operating income | $36,000 |
| Annual debt service | $28,000 |
| Debt-service coverage ratio | 1.29× |
| Cash flow after debt service | $8,000 |
Where the inputs come from
Annual net operating income is the property's income after operating expenses, not including the mortgage, and annual debt service is the sum of principal and interest payments on the loan for a year. For a purchase, use the projected loan. Lenders may use their own underwriting figures, adjusting rents to market or expenses upward, so your ratio may differ from theirs. DSCR loans qualify a borrower on the property's income instead of personal income.
When the result stops applying
DSCR uses NOI before capital reserves, taxes and non-cash costs, so a ratio can look fine while cash is tight. Interest-only periods flatter it and floating rates can worsen it. It says nothing about the property's value, only about the ability to service the loan. Different lenders treat vacancy and management costs differently.
What to compare it with
Get the NOI on the NOI calculator, and size the payment with the mortgage or business loan calculators. The break-even occupancy page shows the vacancy the property can absorb, and the cash-on-cash calculator measures the return. For business loans, see the business DSCR calculator.
People also ask
Frequently asked questions
What DSCR do investment property lenders require?
Commonly 1.2 to 1.25 for investment property loans, with some DSCR loan programs allowing 1.0 or lower at higher rates.
What is a DSCR loan?
An investment property loan qualified by the property's rental income compared with the debt payment rather than by the borrower's personal income.
How can I raise my DSCR?
Increase NOI through rent or expense cuts, lower the payment with a longer term or larger down payment, or shop for a lower rate.