What is DSCR (Debt Service Coverage Ratio)
In commercial real estate lending the term DSCR is commonly used by lenders to determine if an investment property can service the loan.
This ratio should ideally be over 1 while most lenders require a DSCR of about 1.25. That would mean the property is generating enough income to pay its debt obligations plus other expenses.
In general, the DSCR is calculated as follows (annualized amounts):
DSCR = Net Operating Income/Total Debt Service