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Real Estate Glossary

Debt Service Coverage Ratio (DSCR)

Quick Answer

What is Debt Service Coverage Ratio?

Debt service coverage ratio (DSCR) measures how many times a property's net operating income covers its annual loan payments. Lenders and hold investors use it to test debt coverage. A DSCR above 1.00 means NOI is greater than the scheduled debt service in the model. It does not mean the loan is approved, and it does not replace the wholesale ask vs MAO check. When building rent assumptions for DSCR calculations, cross-check estimates against published Fair Market Rent benchmarks in the <a href='/fmr'>FMR Atlas</a>.

DSCR Formula

DSCR = annual NOI / annual debt service

Frequently Asked Questions

What does a DSCR of 1.25 mean?+

It means modeled annual NOI is 1.25 times modeled annual debt service. It does not guarantee approval or account for every lender adjustment.

Is DSCR based on rent or NOI?+

The standard property test uses NOI divided by annual debt service. Start with rent, subtract vacancy and operating expenses, then use the resulting NOI.

Should wholesalers calculate DSCR before MAO?+

Usually no. First test ask vs MAO. Calculate DSCR when a hold buyer needs financing and rental underwriting after the price clears.

Does a higher DSCR always mean a better deal?+

No. It can come from a lower loan or more cash invested. Check price, repairs, rent evidence, reserves, and the buyer's full return plan.

Related Terms

Noi Cap Rate