Debt Service Coverage Ratio (DSCR)

DSCR measures the property's ability to cover its debt service obligations with its net operating income.

Formula

DSCR = Net Operating Income / Annual Debt Service

What this tells you

Lenders use DSCR to evaluate risk. A DSCR of 1.0 means net operating income exactly equals debt service. Lenders typically look for a minimum DSCR of 1.20 to ensure a safety cushion.

How to improve it

• Pay Down Principal: Reduce loan amounts to lower debt obligations.
• Boost Operating Efficiency: Reduce operating costs to increase NOI.