DSCR (Debt Service Coverage Ratio)
DSCR is NOI divided by annual debt service — the first test every lender runs. Below 1.0x the property can't cover its loan from operations.
DSCR (debt service coverage ratio) = NOI ÷ annual debt service (principal + interest). It answers one question lenders care about most: does the property's income cover its loan payment?
- ≥ 1.25x — clears a typical lender minimum with cushion.
- 1.0x–1.20x — covers debt but thin; many lenders won't fund it.
- < 1.0x — operations don't cover the loan; the deal needs more equity, a lower price, or higher NOI.
Why it matters: DSCR sizes your loan and gates financing before returns even enter the conversation. Use the honest, post-reserves NOI when you compute it — the same discipline as the true cap rate.
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