1. What is DSCR?

The Debt Service Coverage Ratio (DSCR) is a financial metric used in real estate to measure a property's ability to cover its debt obligations with its net operating income.

2. How Does the Calculator Work?

The calculator uses the DSCR formula:

Where:

• \( NOI \) — Net Operating Income (annual income after operating expenses)
• \( Debt\ Service \) — Annual debt payments (principal + interest)

Explanation: A DSCR of 1.0 means the property generates exactly enough income to pay its debt. Higher values indicate better coverage.

3. Importance of DSCR Calculation

Details: Lenders typically require minimum DSCR values (often 1.20-1.25) to ensure the property generates sufficient income to cover debt payments.

4. Using the Calculator

Tips: Enter NOI and Debt Service in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DSCR ratio?
A: Generally, 1.25 or higher is considered good by most lenders. Below 1.0 indicates negative cash flow.

Q2: How is NOI calculated?
A: NOI = Gross Rental Income - Operating Expenses (excluding debt service and income taxes).

Q3: What's included in debt service?
A: All principal and interest payments on the property loan for the period.

Q4: Can DSCR be less than 1?
A: Yes, but this means the property doesn't generate enough income to cover its debt payments.

Q5: How often should DSCR be calculated?
A: Annually as part of financial reviews, and before applying for financing or refinancing.