DSCR Calculator

How to read this result

The large number is debt service coverage: net operating income divided by the annual debt service on the loan you entered. On the default deal — $2,300 a month in rent, $200,000 of debt at 7.25% — NOI is $17,756, annual debt service is $16,372, and DSCR is 1.08.

The breakdown then runs the formula backwards. It shows the debt service your target DSCR would support, the loan principal implied by that debt service, and the gap between the loan you entered and the capacity your inputs imply. Read the gap row carefully: a positive number means the loan costs more than the NOI supports at your target.

What DSCR measures

Debt service coverage ratio answers one question: how many times over does the property’s net operating income cover its mortgage payment? It is the ratio a lender checks when the property, rather than the borrower’s personal income, is the basis of the loan.

DSCR = Net operating income ÷ Annual debt service
Stress DSCR = (Net operating income − Capex reserves) ÷ Annual debt service

Both figures use the same denominator. The difference is the numerator: the lender basis stops at NOI, and the stress version subtracts the capital reserve first. On the default deal the reserve is $1,380 a year, and it takes coverage from 1.08 to 1.00 — the property covers its mortgage before reserves and only just covers it after them.

That gap is this site’s reason for showing two numbers. NOI excludes capex by the lender convention, but a roof replacement is still money the owner will spend. A deal that clears a 1.25 covenant on the lender basis and a 1.05 on the stress basis has very little room for the building itself.

Where the debt capacity number comes from

The reverse calculation has three steps, and each one is visible in the breakdown:

1. Divide NOI by the target DSCR. At $17,756 of NOI and a 1.25 target, the property can support $14,205 of annual debt service.
2. Divide by twelve. That is $1,184 of monthly payment.
3. Solve for the principal that a $1,184 payment supports at 7.25% over 30 years: $173,523.

Max annual debt service = NOI ÷ target DSCR
Max loan = P × (1 − (1 + r)⁻ⁿ) ÷ r, where P is the monthly payment

Against the $200,000 loan entered, that capacity figure is $26,477 lower. The loan is not hypothetical — it exists — so the useful number is the gap: $2,167 of annual debt service more than the target supports, and $2,709 of NOI missing versus the $20,465 the loan requires at a 1.25 target.

One warning about reading that comparison. Debt capacity is not a prediction of what a lender will approve. It is the loan this cash flow could support at the target you chose. Appraisals, credit, reserves and lender overlays all sit outside this arithmetic, which is why the disclaimer above the article is not boilerplate.

The target moves everything

The target DSCR is the assumption that changes the answer most, because it sits in the denominator of the capacity calculation. Here is the same property and the same loan terms at four different targets:

Moving the target from 1.20 to 1.25 removes about $7,200 of capacity; moving it from 1.25 to 1.50 removes another $29,000. The property did not change. This is why the ratio a lender actually uses matters as much as the rate, and why quoting a loan amount without quoting the coverage assumption is incomplete.

The rate moves coverage as well

The target is an assumption; the interest rate is a contract term. Holding the $200,000 loan and the $17,756 of NOI fixed, here is what happens as the rate moves:

A point and a half of rate takes coverage from 1.17 to 1.01 and the implied capacity from $187,279 to $161,323. More importantly, the stress DSCR falls below 1.00 at 8.00%: after the capex reserve, the property would no longer cover its mortgage. The lender-basis ratio still reads 1.01, which is exactly why the second number is on the page.

Notice also that the capacity column moves with the rate twice over: a higher rate raises the payment on the loan being considered and reduces the principal that a fixed monthly payment can support. Coverage and capacity are both rate-sensitive, and a rate quote is part of the deal, not a detail.

What DSCR does not include

The ratio is deliberately narrow, and the exclusions are where misunderstandings start:

• Capex reserves on the lender basis. The stress figure adds them, but the headline DSCR does not. A property can meet its covenant and still need a new roof.
• The borrower. Credit, liquidity, experience and reserves are outside this arithmetic. A strong ratio does not replace them, and a weak one is not automatically fatal if the lender prices for it.
• The appraisal. The loan amount may be limited by the property’s appraised value and the lender’s maximum loan-to-value, not only by cash flow.
• Vacancy stress. The vacancy factor is an input. If the market softens, the NOI in this calculation falls, and coverage falls with it.
• Taxes and insurance treatment. This calculator treats them as operating expenses. A lender that includes them in the payment will compute a different ratio from the same property.

DSCR loans and conventional loans

Conventional investment-property loans are usually underwritten with the borrower’s income, tax returns and debt-to-income ratio as central inputs. DSCR loans are underwritten primarily on the property’s cash flow: the ratio on this page, an appraisal, and the lender’s own reserve and experience requirements. Rates and fees on DSCR products are generally higher than on agency-backed conventional loans, reflecting that difference in underwriting.

The practical consequence for analysis is that the property has to stand on its own numbers. A high income borrower cannot make a 0.9 DSCR deal work on the lender basis by adding personal income, and a property with a 1.4 DSCR is not automatically approved. Both statements are about underwriting, not about whether a deal is worth doing.

Checking the inputs before you rely on the ratio

A few inputs decide most of the answer. Confirm that the rent is in-place rent rather than a market estimate, and confirm that property tax reflects the assessment after sale — a reassessment can move NOI by several thousand dollars on a single property. Then check the loan terms: a quarter point of rate changes both the payment and the capacity calculation, and an interest-only structure changes the payment without paying down principal.

The term deserves the same scrutiny. A longer amortisation lowers the monthly payment and raises coverage, but it also slows the principal paydown that builds equity. Coverage is a snapshot of one year; the amortisation schedule is what happens over thirty.

The rental cash flow calculator shows the same property as a monthly waterfall, and the cash-on-cash return calculator shows what the remaining cash earns on the money invested. Both use the same NOI definition as this page.