What is DSCR and Why Do I Need It?

Debt Service Coverage Ratio is the measurement of a property’s cash flow compared to its ability to repay debt. DSCR can be used to analyze companies, or other projects, but in real estate we apply it to a particular rental property. 

Take Away. If the DSCR calculation is less than 1, you will have cash flow problems. If less than 1.2, you need things to be practically perfect. If above 1.2, you will likely be able to service the debt on your project and cover your other ownership expenses. 

So how do you calculate it?

Here’s the formula: DSCR = NOI / Total Debt Service.

NOI is your net operating income.

Total Debt service includes both principle and interest, but not taxes and insurance. 

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