Debt Service Coverage Ratio (DSCR)

Real Estate Investing

Updated Apr 2026 • Has calculator

The ratio of a property's net operating income to its annual mortgage payments, used by lenders to determine whether a property qualifies for financing.

What is DSCR?

The Debt Service Coverage Ratio (DSCR) measures how many times a property's net operating income can cover its annual debt service (principal and interest payments). A DSCR of 1.00 means NOI exactly covers mortgage payments — no margin for error. Most commercial real estate lenders require a minimum DSCR of 1.20–1.25x, meaning the property generates 20–25% more income than required for debt service. DSCR below 1.0 indicates the property cannot service its debt from rental income alone. DSCR-based loans (sometimes called 'investor cash flow loans') are popular for rental property investors who want to qualify based on the property's income rather than personal income.

Formula

DSCR = NOI / Annual Debt Service

Worked Example

2024

Step 1 Annual NOI: $120,000

Step 2 Loan: $800,000 at 7.5% for 25 years → annual P+I: $70,200

Step 3 DSCR = $120,000 / $70,200 = 1.71×

Step 4 → Comfortably exceeds lender's 1.25× minimum requirement

Step 5 → Maximum loan at 1.25× DSCR: $120,000 / 1.25 = $96,000 max debt service

Source: Investopedia — Debt Service Coverage Ratio (DSCR) (2024-01-01)

Calculate DSCR

Annual NOI ($)

Net Operating Income (gross income minus operating expenses, before mortgage)

Annual Debt Service ($)

Annual mortgage payments (principal + interest only)

DSCR

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Not investment advice.

How to Interpret DSCR

< 1

Below 1.0× — property cannot service debt from income alone

1 – 1.25

1.0–1.25× — technically cash-flowing but likely below lender min

1.25 – 1.5

1.25–1.50× — meets standard lender requirements

> 1.5

Above 1.5× — strong coverage; comfortable margin of safety

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Sources

Investopedia — Debt Service Coverage Ratio