Commercial Real Estate DSCR Calculator
Calculate your Debt Service Coverage Ratio and Maximum Loan Amount
Understanding the Debt Service Coverage Ratio (DSCR)
In commercial real estate (CRE) finance, the Debt Service Coverage Ratio (DSCR) is the primary metric lenders use to determine the health of an income-producing property. It measures the property's ability to cover its debt obligations with its Net Operating Income.
How to Calculate DSCR
The formula for DSCR is simple: DSCR = Net Operating Income / Total Debt Service.
- Net Operating Income (NOI): This is the total income generated by the property (rent, parking, laundry) minus all necessary operating expenses (taxes, insurance, maintenance, utilities). It does not include capital expenditures or income taxes.
- Total Debt Service: This is the total amount of principal and interest payments made on the loan over a one-year period.
Why DSCR Matters to Lenders
Lenders use DSCR to assess risk. A DSCR of 1.0 means the property generates exactly enough cash to pay the mortgage, with nothing left over. Most commercial lenders require a minimum DSCR of 1.20x to 1.35x to provide a "cushion" for unexpected vacancies or rising expenses.
Example Calculation
If an apartment complex generates an NOI of $250,000 per year and the annual mortgage payments are $180,000:
DSCR = $250,000 / $180,000 = 1.39
In this scenario, the property is "cash-flow positive" and would likely qualify for a loan from most commercial banks, as the ratio exceeds the standard 1.25 threshold.
Maximizing Your Loan Amount
To increase the amount you can borrow, you must either increase the NOI (by raising rents or decreasing operating expenses) or secure a lower interest rate. Our calculator also helps you determine the maximum loan amount a lender might offer based on their specific DSCR requirements and current market rates.