DSCR calculator
Debt service coverage ratio: whether the property earns enough to cover its own loan payment, and by how much.
What DSCR actually measures
Debt service coverage ratio asks one question: does the property produce enough income to pay its own loan? A DSCR of 1.0 means income exactly covers the payment with nothing spare. Above 1.0 there's a cushion. Below 1.0 the property can't pay for itself and you're covering the difference.
It matters because DSCR loans are underwritten against the property, not against you. There's usually no income verification and no employment check. The ratio does the work a pay stub would otherwise do.
gross annual rent 28800 | + | 28,800 |
vacancy loss -5% | − | 1,440 |
operating costs -9200 | − | 9,200 |
noi: gross annual rent + vacancy loss + operating costs | = | 18,160 |
annual debt service: 14400 | = | 14,400 |
dscr: noi / annual debt service | = | 1.26 |
| Total | 18,160 |
A DSCR of 1.26 — the property earns 26 percent more than its loan payment. A sheet that mixes money with plain counts or ratios will put a currency symbol on all of them. Set the selector above the results to none when that bothers you. It is display only and changes nothing in the arithmetic.
The number lenders want
Most DSCR lenders look for 1.25. Some will go to 1.20, and a few will lend at 1.0 or even below on a strong borrower or a strong market, usually at a higher rate or a lower loan-to-value. Comfortably above 1.25 tends to open better pricing.
The example above clears at 1.26, but only just, which is worth noticing. A single point of extra vacancy, or one insurance renewal going the wrong way, puts it under. When a deal only just clears, the sensible move is to re-run it with worse assumptions and see how it holds up.
What goes into operating costs, and what does not
Operating costs are property tax, insurance, management, maintenance, HOA or service charges, and utilities you pay rather than the tenant.
What does not go in is the mortgage. That's the debt service, on the other side of the division. Putting it in operating costs counts it twice and gives you a ratio that's badly wrong rather than slightly wrong. Capital improvements are out too: a new roof is an investment in the asset, not a running cost.
Improving a ratio that doesn't clear
There are only three levers, and the sheet makes each one a single edit.
- Raise income. Higher rent, or additional income such as parking or storage. Check it against actual local comparables, not hope.
- Cut operating costs. Self-managing removes a management fee, though it's a real job, not free money.
- Reduce debt service. A larger deposit, a longer amortization, or an interest-only period all shrink the annual payment, and this is usually the lever that moves the ratio most.
Because every line is named, changing the deposit means editing one number and reading the new ratio at the bottom. That is the point of writing it out rather than doing it in a calculator: you can see which lever actually moves it.
Check your own deal →Questions
What DSCR do lenders require?
Most DSCR lenders look for 1.25. Some accept 1.20, and a few will lend at 1.0 or below for a strong borrower or market, usually at a higher rate or lower loan-to-value. Comfortably above 1.25 tends to get better pricing.
What does a DSCR of 1.25 mean?
The property produces 25 percent more net operating income than its annual loan payment. A ratio of 1.0 means income exactly covers the payment with nothing spare, and below 1.0 means you're covering the shortfall yourself.
Does the mortgage go into operating costs?
No. The mortgage is the debt service, which is the other side of the division. Including it in operating costs counts it twice and produces a badly wrong ratio.
What is included in net operating income?
Gross rent less vacancy, then less operating costs such as property tax, insurance, management, maintenance, service charges and any utilities you pay. Mortgage payments and capital improvements are excluded.
How can I improve a DSCR that doesn't clear?
Raise income, cut operating costs, or reduce annual debt service through a larger deposit, longer amortization or an interest-only period. The last of those usually moves the ratio most.