What does Debt Service Coverage Ratio (DSCR)(DSR)(DCR)(DR) mean and how do I calculate it?
A. Also known as Debt Service Coverage Ratio (DSCR). The debt coverage ratio (DSCR) is a widely used benchmark which measures an income producing property’s ability to cover the monthly mortgage payments. The DSCR is calculated by dividing the net operating income (NOI) by a property’s annual debt service. Annual debt service equals the annual total of all interest and principal paid for all loans on a property. A debt coverage ratio of less than 1 indicates that the income generated by a property is insufficient to cover the mortgage payments and operating expenses. For example, a DSCR of .9 indicates a negative income. There is only enough income available after paying operating expenses to pay 90% of the annual mortgage payments or debt service. A property with a DSCR of 1.25 generates 1.25 times as much annual income as the annual debt service on the property. In this example, the property creates 25% more income (NOI) than is required to cover the annual debt service.
