DSCR Calculator (Debt Service Coverage Ratio)
Your DSCR Result
What is a DSCR Calculator?
A Debt Service Coverage Ratio (DSCR) calculator is an essential tool for real estate investors and commercial lenders. It measures a property's ability to cover its monthly debt obligations using its own generated income. Unlike residential mortgages that focus on your personal income (DTI), DSCR loans focus primarily on the cash flow of the investment property itself.
The DSCR Formula
DSCR = Net Operating Income (NOI) / Annual Debt Service
- Net Operating Income: Your gross rental income minus vacancy factors and operating expenses (taxes, insurance, maintenance).
- Annual Debt Service: The total amount of principal and interest payments made on the loan over one year.
What is a Good DSCR Ratio?
In the world of real estate financing, lenders use DSCR to assess risk. Here is how most lenders interpret the numbers:
- ✅ 1.25 or Higher: This is the "Gold Standard." It shows the property generates 25% more income than is required to pay the mortgage, providing a healthy safety cushion.
- ⚠️ 1.00 to 1.20: This is considered "tight." The property covers the debt, but there is little room for unexpected repairs or extended vacancies.
- ❌ Below 1.00: Known as "Negative Cash Flow." The property does not generate enough income to cover the debt, and the owner must pay out of pocket to maintain the loan.
Example Calculation
Imagine you are purchasing a multi-family property with the following annual figures:
- Gross Rental Income: $100,000
- Vacancy (5%): $5,000
- Operating Expenses: $25,000
- Annual Mortgage Payments: $50,000
First, calculate the NOI: $100,000 – $5,000 – $25,000 = $70,000.
Then, divide by debt service: $70,000 / $50,000 = 1.40 DSCR. This property would likely qualify for a DSCR loan easily.