DSCR Calculator
The Debt Service Coverage Ratio (DSCR) is a key financial metric in real estate investing, it measures a property’s ability to pay its debt with its net operating income (NOI). A higher DSCR means a stronger financial position, that’s why lenders use it to determine loan eligibility and terms.
Our DSCR Calculator helps investors by giving you a clear picture of a property’s financial health. Use it to make informed decisions, negotiate better loan terms and optimize your portfolio.
- Net Operating Income (NOI): Income from the property after operating expenses but before taxes and debt payments.
- Total Debt Service: The sum of all principal and interest payments on a property’s loans.
Why DSCR Matters in Real Estate
- Lender Confidence: A higher DSCR means lenders know you can pay back the loan and may give you better terms.
- Risk Assessment: To evaluate the financial feasibility and risk of a property.
- Investment Comparison: To compare different properties or investment opportunities.
A DSCR of 1.5 means the property generates 1.5 times the income needed to cover its annual debt payments, which is considered a safe margin by lenders.
DSCR Interpretation
- DSCR < 1: The property doesn’t generate enough income to cover debt (high risk).
- DSCR = 1: The property breaks even, and covers only debt (moderate risk).
- DSCR > 1: The property has surplus income after debt (lower risk).
How to Improve Your DSCR
- Increase NOI: Boost property income through rent increases, occupancy improvements or additional revenue streams.
- Reduce Debt Service: Refinance existing loans to get lower interest rates or longer loan terms.
- Cut Operating Expenses: Optimize property management to reduce costs without sacrificing quality.
Using the DSCR Calculator for Planning
- Loan Qualification: Check if you meet lenders’ DSCR requirements before applying for a loan.
- Investment Analysis: Evaluate the financial health of a potential acquisition.
- Portfolio Management: Monitor DSCR across your properties to find opportunities to improve.
Why a Strong DSCR is Good
- Investor Attraction: Shows you’re a good financial manager.
- Better Financing: Higher DSCR means lower interest rates and better loan terms.
- Financial Buffer: Gives you a cushion for unexpected expenses or market fluctuations.