What Is DSCR in Real Estate: How to Calculate It

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Written By Tommy

DealBloom aims to share the latest tips and strategies to help realtors, brokers, loan officers, and investors navigate the world of real estate.

If you’re a real estate professional, you know that DSCR is an important metric to consider when evaluating a rental property. But what is DSCR in real estate, and how do you calculate it? This blog post will explain everything you need to know about this crucial metric.

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What is DSCR in Real Estate?

What is DSCR in real estate? DSCR is short for debt service coverage ratio. DSCR is a metric used to measure a borrower’s ability to pay their loan based on their current monthly income.

The Debt Service Coverage Ratio indicates whether your property can generate enough money in rental income to cover its mortgage payments. The debt-to-income ratio is one metric that lenders use to determine the maximum amount they can lend to real estate investors.

The DSCR measures how profitable an investment is. It is calculated by dividing the net operating income(NOI) by the annual mortgage payments. A property with a higher (or better) DSCR is more profitable.

Why is DSCR Important for Real Estate Investors?

Real estate investors use a key metric to determine whether a property can generate enough income to cover its debt obligations. A property with a high DSCR is more likely to be able to make its debt payments on time and in full, while a property with a low DSCR may struggle to make its debt payments.

DSCR is important for real estate investors because it can give them a good idea of whether a property is a good investment. If a property has a high DSCR, it is a good investment because it is more likely to be able to make its debt payments on time and in full. A property with a low DSCR is not a good investment because it is more likely to struggle to make debt payments.

How to Calculate DSCR

To calculate your DSCR, you need to take your NOI and divide it by your total debt service (TDS). Your DSCR will be expressed as a percentage and will give you an idea of how well your property can cover its debts.

A higher DSCR means that your property generates more rental income than is needed to cover its debts and is, therefore, a lower-risk investment. A lower DSCR indicates that the subject property may have difficulty meeting its debt obligations and is, therefore, a higher-risk investment.

There are a few different ways to calculate your DSCR, but the most common method is to use your NOI for the most recent 12 months and your TDS for the upcoming 12 months. To calculate your DSCR, divide your NOI by your TDS. For example, if your NOI is $100,000 and your TDS is $50,000, your DSCR would be 2.0 (100,000/50,000).

It’s important to remember that your DSCR is just one of the factors lenders will consider when evaluating your loan request. Other factors will also be considered, such as your credit score and your property’s value. However, a strong DSCR will certainly help your case for loan approval.

Tips for Improving Your Property’s DSCR

As a property owner, you know that first impressions are important. Your property’s DSCR is one of the key factors that lenders look at when considering a loan. A strong DSCR demonstrates your ability to make your mortgage loan payments and still have money left over for other property expenses.

Here are some ways to improve properties DSCRs:

Increase amortization period

 If your debt-to-income ratio is too low for a 10-year mortgage, consider getting a 15 or 20-year mortgage loan. This lowers the monthly mortgage loan payments but increases the total amount of interest paid over the life of the loans.

Get an Interest-only loan.

Construction loans and similar short-term, interest-only loans are advantageous because they reduce your monthly debt service. While the lender will still calculate your debt service to income ratio, it will include the principal payment.

Decrease leverage

By putting down more cash, you demonstrate your commitment, and lenders like to see this.

Increase revenues

A part of your real estate investment may go toward renovations, allowing you to increase rent and reduce vacancy rates. This improves NOI and DSCR. It’s a win/win.

Cut property operating expenses

You can increase your NOI by decreasing your property’s operating expenses. Here are some of the ways of reducing your operating expenses:

  • Charging tenants for services that were previously free.
  •  Finding cheaper vendors.
  •  Replacing higher-salaried workers with lesser-salaried ones.
  •  Speeding up the eviction processes.

Frequently Asked Questions

How do you calculate DSCR?

DSCR is a property’s NOI ratio to its debt service.

What is a DSCR mortgage loan?

A DSCR mortgage loan is a loan that is used to finance the purchase of a property where the borrower’s DSCR is less than 1.0.

Is a DSCR loan a good idea?

There is no definitive answer to this question as it depends on the borrower’s specific situation. A DSCR loan can be a good idea for some borrowers looking to purchase a property with a high loan-to-value ratio and with a strong credit history. However, borrowers should be aware that DSCR loans typically have higher interest rates than traditional real estate loans.

How do you calculate DSCR for a rental property?

DSCR is a property’s NOI ratio to its debt service.


So, what is DSCR in real estate? It stands for Debt Service Coverage Ratio and measures the ability of a property’s income to cover its debt payments. To calculate DSCR, divide the property’s NOI by its total debt service. The higher the ratio, the better – more income is available to cover debts. So if you’re looking at a rental property and want to get an idea of its financial health, calculate its DSCR!