DSCR Calculator for Real Estate Investors
Calculate your Debt Service Coverage Ratio instantly to determine loan eligibility.
Calculation Results
0.00
Net Operating Income (NOI):
$0.00
Annual Debt Service:
$0.00
Monthly Loan Payment:
$0.00
Monthly Cash Flow:
$0.00
What is the Debt Service Coverage Ratio (DSCR)?
The Debt Service Coverage Ratio (DSCR) is a critical financial metric used by real estate investors and lenders to evaluate the profitability and risk of a rental property. Unlike standard residential loans that focus on your personal income (DTI), DSCR loans focus entirely on the property's ability to cover its own debts.
Essentially, the DSCR compares the property's Net Operating Income (NOI) to its Annual Debt Service (principal and interest payments).
The DSCR Formula
The calculation is straightforward but powerful:
DSCR = Net Operating Income (NOI) ÷ Total Debt Service
- NOI: Gross Annual Rental Income minus Operating Expenses (Taxes, Insurance, HOA, Management, Maintenance). Note: NOI does not include mortgage payments.
- Debt Service: The total annual principal and interest payments on the loan.
Interpreting Your DSCR Score
Lenders use specific benchmarks to decide whether to fund a loan. Here is how to interpret the results from our DSCR calculator:
| DSCR Value | Interpretation | Lender Perception |
|---|---|---|
| < 1.00 | Negative Cash Flow | High Risk. The property generates less income than the cost of the debt. Most lenders will reject this. |
| 1.00 | Break-Even | Neutral. Income exactly covers the debt. Risk is still considered high for unexpected expenses. |
| 1.00 – 1.20 | Positive Cash Flow | Moderate. Many DSCR lenders will approve loans in this range, though rates may be higher. |
| > 1.25 | Strong Cash Flow | Low Risk. This is the "Gold Standard" for commercial and investment residential loans. Best rates available. |
Example Calculation
Let's say you are buying an investment property with the following metrics:
- Gross Rental Income: $60,000 per year
- Operating Expenses: $15,000 per year (Taxes, Insurance, etc.)
- Loan Payment: $3,000 per month ($36,000 per year)
First, calculate NOI: $60,000 – $15,000 = $45,000.
Next, divide NOI by Annual Debt Service: $45,000 / $36,000 = 1.25.
A DSCR of 1.25 means the property generates 25% more income than required to pay the mortgage, making it a safe bet for lenders.
How to Improve Your DSCR
If your calculation shows a ratio below 1.0 or 1.25, you can improve it by:
- Increasing Down Payment: This lowers the loan amount, which lowers the monthly debt service.
- Increasing Rents: Renovating or improving management to justify higher market rents increases your NOI.
- Lowering Expenses: Appealing property taxes or shopping for cheaper insurance can boost your NOI.
- Interest Rate Buydown: Paying points upfront to lower the interest rate will reduce the annual debt service.