DSCR (Debt Service Coverage Ratio)
A property's net operating income divided by its annual debt service — measures ability to cover loan payments.
Definition
Debt Service Coverage Ratio (DSCR) = Net Operating Income ÷ Annual Debt Service. It measures whether a property's income is sufficient to cover its loan obligations. A DSCR of 1.0 means income exactly covers the debt; 1.25 means income is 25% greater than debt service.
Lenders use DSCR as a primary underwriting metric for commercial and investment property loans. Most lenders require a minimum DSCR of 1.20–1.25. A DSCR below 1.0 means the property is cash flow negative and the borrower must subsidize the loan from outside income.
DSCR loans are a popular product for real estate investors because they qualify based on the property's income rather than the borrower's personal income — making them ideal for self-employed investors or those with many loans. This allows investors to scale without hitting conventional loan limits.
Related Terms
Debt Service
The total cash required to cover loan payments — both principal and interest — over a given period.
Net Operating Income (NOI)
A property's total income minus all operating expenses, before mortgage payments and taxes.
Cash Flow
The money left over each month after all property-related income and expenses are accounted for.
Loan-to-Value (LTV)
The ratio of a loan's balance to the property's appraised value, expressed as a percentage.
Hard Money Loan
Short-term, asset-based loans from private lenders — used for acquisitions and rehabs when speed matters.
Also in "D"
Days on Market (DOM)
The number of days a property has been listed for sale before going under contract.
Deed
A legal document that transfers ownership of real property from one party to another.
Double Close
Two simultaneous closings on the same property — an investor buys from the seller then immediately sells to the end buyer.