DSCR calculator
A DSCR calculator divides net operating income by annual debt service to produce the debt service coverage ratio, which measures how many times a property's income covers its loan payments.
Use the lender's NOI, including management fee and reserves
- Net operating income
- $390,000
- Annual debt service
- $310,321
- Cash flow after debt service
- $79,679
- DSCR
- 1.26x
- Debt yield
- 9.29%
Formula
DSCR = Net Operating Income / Annual Debt ServiceHow to read the result
DSCR is the primary credit test in commercial real estate lending. A 1.25x ratio means the property generates 25% more income than it needs to pay its mortgage, and that cushion is what the lender is underwriting to.
Because DSCR often binds before loan-to-value does, it frequently determines actual loan proceeds. A lender may be willing to lend 75% of value on paper while the coverage test caps the loan well below that. DSCR also appears as an ongoing covenant, so falling below the required level during the hold can trigger a cash flow sweep even when payments are current.
Common questions
- What DSCR do lenders require for multifamily?
- Agency lenders commonly require a minimum 1.25x debt service coverage ratio on stabilized multifamily. Bridge and construction lenders test a stabilized or forward-looking DSCR instead, since the property does not yet produce the income to support the loan.
- What does a DSCR below 1.0 mean?
- A DSCR below 1.0x means the property does not generate enough income to cover its debt service out of operations. The shortfall has to be funded from an interest reserve, from other cash, or from an equity infusion.
- Do lenders use my NOI or their own?
- Their own. Lenders re-underwrite net operating income and will typically add a market management fee and replacement reserves even when the seller's statement omits both. Expect their NOI, and therefore the DSCR they compute, to be more conservative than yours.
Terms used here
- Debt Service Coverage Ratio (DSCR)
The debt service coverage ratio is net operating income divided by total annual debt service, and it measures how many times a property's income covers its loan payments.
- Net Operating Income (NOI)
Net operating income is a property's effective gross income minus all operating expenses, excluding debt service, capital expenditures, depreciation, and income taxes.
- Debt Yield
Debt yield is net operating income divided by the total loan amount, measuring the unlevered return a lender would earn if it foreclosed and took the property back on day one.
- Loan-to-Value (LTV)
Loan-to-value is the loan amount divided by the appraised value or purchase price of a property, expressed as a percentage, and it measures how much of the capital stack is debt.
- Interest-Only Period
An interest-only period is a stretch at the start of a loan term during which the borrower pays only accrued interest and no principal, lowering debt service and raising early cash flow.
Other calculators
- Cap rate calculator
A cap rate calculator divides a property's annual net operating income by its purchase price to produce the capitalization rate, the unlevered yield the property generates at that price.
- NOI calculator
An NOI calculator computes net operating income by subtracting vacancy, credit loss, and operating expenses from gross potential rent and adding other income, producing the figure that drives cap rate, DSCR, and property value.
- Cash-on-cash calculator
A cash-on-cash return calculator divides annual pre-tax cash flow after debt service by total equity invested, measuring the yearly cash yield an investor actually receives on the money they put in.
- Max loan calculator
A maximum loan calculator sizes the largest loan a property supports by testing loan-to-value, debt service coverage, and debt yield simultaneously, then returning the smallest of the three, which is how commercial lenders actually size debt.
This calculator is provided for informational purposes and is not investment, tax, or lending advice. Results depend entirely on the inputs you provide. Lenders re-underwrite net operating income on their own terms, so their figures will differ from these.