Debt Service Coverage Ratio (DSCR) Explained

Debt Service Coverage Ratio (DSCR) measures the net operating income available to cover debt service (principal and interest) in a given operating period.

Debt Service Coverage Ratio (DSCR) is useful for analyzing financial statements and estimating cash flow for a business or investment property. Commercial lenders commonly use the debt service coverage ratio to establish creditworthiness and determine the size of the loan.

DSCR expresses the net operating income divided by the total debt service for a particular property.

For example, if the net operating income (NOI) is $100,000 and the total debt service is $80,000, the DSCR would be 1.25, often notated as 1.25x. This means that the property’s NOI covers debt 1.25 times.

Aside from getting insight into financing options, the debt service coverage ratio is a useful metric for real estate investors to use when comparing properties to add to their portfolios. DSCR provides a good cash flow estimate for prospective properties and can help an investor determine an offer amount.

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[surendrareddy]

Good explanation., if you can you please slow down a bit, then it's great.

[Engineering_Science]

What exactly is annual debt service? Is this the total sum of debt divided by the number of years contracted for DSCR? For example lets say total debt is 2 million and the property generates $132K/year, how would I calculate the DSCR for this?

[Jan-sdnc]

Hello, I would like to calculate the maximum amount of debt that my fictitious company can borrow. But how do I determine the respective CFADS if I don't know my interest charge yet? As a tax shield, this has an influence on my tax load and thus on the CFADS. I would be very happy if someone could answer me.

[straightshooterz]

This DSCR loan is very expensive in long term. That’s whT the lenders aren’t telling you

[ziggyc]

Total income this includes personal income plus the business income or only the income of the business minus the debt gives your the percentage of the dscr?