DSCR Calculator
Estimate a property’s Debt Service Coverage Ratio using rental income, operating expenses, and mortgage financing.
Property & Loan Details
DSCR Results
How to Use the DSCR Calculator
Using the DSCR Calculator is simple. Enter the property value, monthly rent, other income, vacancy rate, operating expenses, down payment, interest rate, and loan term. Realtolic will automatically estimate net operating income (NOI), monthly debt payment, annual debt service, annual cash after debt, and the Debt Service Coverage Ratio (DSCR).
DSCR Calculator Example
For example, suppose a rental property is valued at $350,000 with a 25% down payment, creating a loan amount of $262,500. The property earns $3,000 per month in rent and has a 5% vacancy rate. After operating expenses, its estimated net operating income (NOI) is $23,664 per year. With a 6.5% interest rate and a 30-year loan term, the estimated annual debt service is about $19,910. This produces a DSCR of approximately 1.19.
How Is DSCR Calculated?
DSCR is calculated by dividing a property's net operating income (NOI) by its annual debt service. The basic formula is: DSCR = Annual NOI ÷ Annual Debt Service. For example, if a property has $30,000 in annual NOI and $24,000 in annual debt payments, its DSCR is 1.25.
For a complete explanation, read our guide to what DSCR means in real estate.
What Is a Good DSCR for Real Estate?
A DSCR above 1.00 means the property's NOI is greater than its debt payments, while a DSCR below 1.00 means NOI may not be enough to cover the debt. Lender requirements vary, and some lenders may look for additional coverage above 1.00 when evaluating a loan.
Why Is DSCR Important for Real Estate Investors?
DSCR helps investors understand whether a property's operating income is sufficient to cover its debt payments. It can also be an important metric for lenders when evaluating rental property loans. A stronger DSCR generally provides a larger income cushion if rental income falls or operating expenses increase.
DSCR vs. Cash-on-Cash Return
DSCR and cash-on-cash return measure different parts of a real estate investment. DSCR compares net operating income with annual debt service to measure debt coverage. Cash-on-cash return compares annual pre-tax cash flow with the total cash invested in the property.
How Can You Improve DSCR?
DSCR may improve when a property's net operating income increases or its debt payments decrease. This may happen through higher rental income, lower vacancy, reduced operating expenses, a larger down payment, a lower interest rate, or different loan terms. Actual financing options and lender requirements can vary.
DSCR Calculator FAQs
What does a DSCR of 1.25 mean?
A DSCR of 1.25 means the property's net operating income is approximately 1.25 times its annual debt service. For example, $30,000 of annual NOI divided by $24,000 of annual debt service equals a DSCR of 1.25.
Can DSCR be below 1.00?
Yes. A DSCR below 1.00 means the property's estimated NOI is less than its annual debt payments, indicating that operating income alone may not be sufficient to cover the debt service.
Does DSCR include mortgage payments?
DSCR uses annual debt service, which generally includes the principal and interest payments required on the property's loan.
Does vacancy affect DSCR?
Yes. Higher vacancy can reduce effective rental income and NOI. If annual debt payments remain unchanged, lower NOI will generally reduce the property's DSCR.
Is a higher DSCR better?
A higher DSCR generally indicates a larger income cushion above required debt payments. However, DSCR is only one part of a property and loan analysis, and lender requirements can vary.
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