RealInvestorX
Rental deal math
DSCR, without the guesswork.
Debt service coverage ratio helps you compare a property's operating cash flow with its debt payments. Use it as a screening question, then check the lender's actual rules.
The screening formula
DSCR = annual net operating income ÷ annual debt serviceUse income after realistic vacancy and operating expenses. Debt service includes the loan payments for the same period. A ratio above 1 means the modeled cash flow exceeds modeled debt service; it does not mean a loan will be approved.
Example: $36,000 in annual net operating income divided by $30,000 in annual debt service is 1.20. A higher tax bill or lower collected rent changes the result.
Inputs worth checking
- Collected rent, not only advertised rent
- Vacancy, repairs, management, taxes, and insurance
- Actual rate, loan term, and required reserves
- Which cash-flow definition your lender uses
What the ratio leaves out
DSCR is one view of a deal. It does not price a surprise repair, guarantee a refinance, or replace a loan officer's underwriting. Lenders may adjust net cash flow and debt service differently. The Fannie Mae Multifamily Guide defines its own DSCR calculation; ask your lender which definition applies to your property and loan.
RealInvestorX keeps financing assumptions beside the rest of the deal so you can revise them rather than trust a single ratio. Create a free account to use the signed-in Deal Analyzer and save up to five deals.