Real Estate & Investing
DSCR Calculator
Measure how comfortably a property's net operating income covers its loan payments — the ratio most lenders underwrite to.
Calculation inputs
Enter annual NOI and the loan terms you are underwriting.
Results
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Complete the fields and select Calculate to show results here.
About this calculator
The debt service coverage ratio, or DSCR, compares a property's annual net operating income to its annual loan payments. Lenders use it as the primary underwriting test for whether a property generates enough income to safely cover its debt.
How the calculation works
- Monthly payment is a standard amortized payment on the loan amount, rate, and term
- Annual debt service = monthly payment × 12
- DSCR = net operating income ÷ annual debt service
Notes and assumptions
Many lenders require a minimum DSCR of 1.20–1.25 on stabilised multifamily loans.
Interest-only periods raise DSCR temporarily; test the ratio against the fully amortizing payment too.
How it works in plain English
The calculator first computes the monthly loan payment using the standard fixed-rate amortization formula, based on the loan amount, interest rate, and loan term you enter. Multiplying that payment by twelve gives the annual debt service.
DSCR is then found by dividing your entered annual net operating income (NOI) by the annual debt service. A ratio of 1.00 means the property's income exactly covers its loan payments with nothing left over; anything below that means the property does not generate enough income to service the debt on its own.
The result is labeled based on common lending conventions: below 1.00 signals negative cash flow risk, between 1.00 and 1.25 is considered marginal, and above 1.25 is generally viewed as strong. The calculator also shows the monthly surplus or shortfall between NOI and debt service, which is useful for seeing the cushion in dollar terms rather than just as a ratio.
The formula
- Monthly payment = standard amortized payment on loan amount, rate, and term
- Annual debt service = monthly payment x 12
- DSCR = annual NOI / annual debt service
Worked example
A property with $96,000 in annual NOI is financed with a $900,000 loan at 6.5% over 30 years. The monthly payment on that loan is about $5,689, which comes to $68,268 in annual debt service.
Dividing $96,000 by $68,268 gives a DSCR of about 1.41. Since that's above 1.25, the property would generally be considered a strong candidate for this loan amount, with roughly $2,311 in monthly surplus after debt service is paid. That surplus provides a cushion if a unit sits vacant for a month or an unexpected repair comes up, which is exactly the kind of buffer lenders are trying to confirm exists before approving a loan at this amount.
How lenders commonly read DSCR
| DSCR | Common interpretation |
|---|---|
| Below 1.00 | Income does not cover debt service; negative cash flow risk |
| 1.00 - 1.25 | Marginal coverage; limited cushion for expense increases or vacancy |
| Above 1.25 | Generally considered strong coverage |
Ranges reflect widely used underwriting conventions and vary by lender and loan program.
Frequently asked questions
What DSCR do lenders typically require for multifamily loans?
Many lenders look for a minimum DSCR of 1.20 to 1.25 on stabilized multifamily properties, though the exact threshold varies by lender, loan program, and property risk profile. Some loan programs allow lower ratios with additional reserves or guarantees.
Does DSCR account for an interest-only period?
This calculator assumes a fully amortizing payment. If your loan has an interest-only period, the DSCR during that time will be higher than shown here, so it's worth testing the ratio against the eventual fully amortizing payment as well.
Can DSCR be higher than the cap rate implies?
Yes. DSCR depends on the specific loan terms — rate, term, and amount — while cap rate depends only on NOI and price. Two loans on the same property can produce very different DSCRs even though the NOI and cap rate stay the same.
What happens if DSCR is below 1.00?
It means the property's net operating income alone isn't enough to cover the loan payment, so the owner would need to cover the shortfall from other funds. Many lenders will not approve a loan with a DSCR below 1.00 without significant compensating factors.
Should I use trailing NOI or projected NOI in this calculator?
Lenders typically underwrite to actual trailing twelve-month NOI rather than optimistic projections. Using a conservative, historically supported NOI figure gives a more realistic DSCR than plugging in a pro forma number based on future rent increases.
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