Debt Service Coverage Ratio for Real Estate Investing
This is the sum of your mortgage payments (P+I) for the entire year.
Your DSCR Ratio
What is a DSCR Calculator?
The Debt Service Coverage Ratio (DSCR) is a critical financial metric used by commercial and residential real estate lenders to evaluate a property's ability to cover its debt obligations. Unlike traditional loans that focus on personal income, a DSCR loan focuses on the property's cash flow.
The DSCR Formula
The calculation is straightforward but vital for underwriting:
DSCR = Net Operating Income (NOI) / Annual Debt Service
Where:
Net Operating Income (NOI): Gross Rental Income minus all operating expenses (taxes, insurance, maintenance, utilities).
Annual Debt Service: The total amount of principal and interest payments made on the loan over one year.
Understanding Your DSCR Results
Ratio
Meaning
Above 1.25
Strong cash flow; standard benchmark for most lenders.
1.00 – 1.20
Narrow margin; may require higher interest rates or larger down payments.
Below 1.00
Negative cash flow; the property does not generate enough income to pay the mortgage.
Example Calculation
Imagine an apartment building with an Annual Gross Income of $150,000. The Operating Expenses (property management, repairs, taxes) total $50,000. The Annual Mortgage Payments total $80,000.
Calculate NOI: $150,000 – $50,000 = $100,000
Calculate DSCR: $100,000 / $80,000 = 1.25
In this scenario, the property has exactly 25% more income than is required to service the debt, making it an attractive candidate for a DSCR loan.
function calculateDSCR() {
var grossIncome = parseFloat(document.getElementById('grossIncome').value);
var expenses = parseFloat(document.getElementById('operatingExpenses').value);
var debtService = parseFloat(document.getElementById('debtService').value);
var resultBox = document.getElementById('dscrResultBox');
var dscrValueDisp = document.getElementById('dscrValue');
var dscrStatusDisp = document.getElementById('dscrStatus');
var noiValueDisp = document.getElementById('noiValue');
if (isNaN(grossIncome) || isNaN(expenses) || isNaN(debtService) || debtService <= 0) {
alert('Please enter valid numerical values. Debt Service must be greater than zero.');
return;
}
var noi = grossIncome – expenses;
var dscr = noi / debtService;
var roundedDSCR = dscr.toFixed(2);
resultBox.style.display = 'block';
dscrValueDisp.innerText = roundedDSCR;
noiValueDisp.innerHTML = 'Net Operating Income (NOI): $' + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + '';
if (dscr >= 1.25) {
resultBox.style.backgroundColor = '#f0fff4';
dscrValueDisp.style.color = '#2f855a';
dscrStatusDisp.style.color = '#2f855a';
dscrStatusDisp.innerText = 'Strong Coverage';
} else if (dscr >= 1.0) {
resultBox.style.backgroundColor = '#fffaf0';
dscrValueDisp.style.color = '#c05621';
dscrStatusDisp.style.color = '#c05621';
dscrStatusDisp.innerText = 'Tight Coverage';
} else {
resultBox.style.backgroundColor = '#fff5f5';
dscrValueDisp.style.color = '#c53030';
dscrStatusDisp.style.color = '#c53030';
dscrStatusDisp.innerText = 'Negative Cash Flow';
}
}