Debt Service Coverage Ratio

DSCR (Debt Service Coverage Ratio): The Debt Service Coverage Ratio (DSCR) measures the cash flow available to pay current debt obligations. In real estate financial modeling, it's a key ratio used by lenders to assess a property's ability to generate enough cash flow to cover its debt payments.

The ratio is calculated by dividing the Net Operating Income (NOI) by the total debt service. For example, if a property's NOI is $500,000 and the annual debt service is $400,000, the DSCR is 1.25.

DSCR = Net Operating Income / Total Debt Service

A DSCR of less than 1 indicates that there is insufficient cash flow generated by the property to cover its debt obligations. A DSCR of greater than 1 means the property is generating sufficient income to pay its debts. Lenders typically prefer a DSCR of 1.2 or higher to provide a cushion.