DSCR compares a property’s NOI to its annual debt payments — the ratio lenders use to size commercial and rental loans. A DSCR of 1.25 means income covers the loan 1.25 times over.
The example
$48k NOI, $38.4k debt service.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | NOI | 48000 |
| 3 | Debt service | 38400 → 1.25 |
The formula
The formula:
How it works
How it works:
NOI / annual_debt_servicegives the DSCR — how many times income covers the loan payments.- Above 1.0 means the property pays its own debt; below 1.0 means it doesn’t.
- Lenders typically require 1.20–1.25 minimum, leaving a safety cushion.
- Rearrange to find the max loan payment:
NOI / required_DSCR.
Sizing a loan from DSCR: if a lender requires 1.25x and NOI is $48k, the maximum annual debt service is 48000 / 1.25 = $38,400. From there, the loan amount follows from the rate and term via PV — DSCR effectively caps how much you can borrow.
Try it: interactive demo
NOI and annual debt service.
Variations
Max debt service
From required DSCR:
Annual debt service
From monthly payment:
Break-even (DSCR=1)
NOI needed:
Pitfalls & errors
Use NOI, not cash flow. DSCR is before debt — numerator is NOI.
Annual basis. Multiply a monthly payment by 12 for the denominator.
Zero debt service. A no-loan property has no DSCR (#DIV/0!).
Practice workbook
Frequently asked questions
How do I calculate DSCR in Excel?
What DSCR do lenders require?
How do I size a loan from DSCR?
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