Debt Service Coverage Ratio (DSCR)
Also called: DSCR, Debt Service Coverage
The ratio of a property's net operating income to its debt service, used by lenders to underwrite investment property loans.
DSCR = Net Operating Income / Annual Debt Service
Full definition
DSCR is the metric commercial and investment property lenders use to decide whether a deal cash-flows enough to service its debt. A DSCR of 1.25 means the property produces 25% more NOI than the annual mortgage payment. Most rental-property lenders require DSCR ≥ 1.20 to approve. DSCR-only loans (which underwrite on the property's cash flow, not the borrower's personal income) have become standard for professional investors building rental portfolios.
Used for
- rental property loan underwriting
- portfolio lender qualification
- commercial real estate financing
Sources
Related SailsAndShore resources
Workbooks
- Real Estate Investor Portfolio · $8.63
- Rental Property Landlord Toolkit · $8.63
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