How to Calculate Your DSCR Ratio

Today we are going to discuss how to calculate your DSCR ratio. Understanding your DSCR (Debt Service Coverage Ratio) is key for any real estate investor. This number shows if your property makes enough income to cover its debt payments. Lenders use it to see if your investment is a smart bet. Luckily, calculating it is simple.

Here’s the formula:

DSCR = Net Operating Income (NOI) ÷ Total Debt Payments

Start with your property’s NOI. This is all the income it brings in, minus operating expenses like maintenance, property management, and taxes. For example, if your rental brings in $2,500 monthly and expenses are $500, your NOI is $2,000.

Next, add up your debt payments. This includes your monthly mortgage, insurance, and other loan costs. If these total $1,800, your DSCR is:
$2,000 ÷ $1,800 = 1.11

A DSCR over 1.0 means the property earns enough to cover its debts. Lenders often like to see 1.2 or higher, but it depends on the loan type.

Why does it matter?

Why does this matter? If your DSCR is too low, it might mean you’ll struggle to pay your bills. But a high DSCR shows lenders that you’re a safe bet.

By knowing your DSCR, you can plan smarter. For example, if your DSCR is tight, you might look at lowering expenses or finding a property with stronger cash flow.

So, run the numbers. It’s a small step that helps you, and your lender, see the big picture.

Contact Us Today! 

Do you need help learning how to calculate your DSCR ratio? Contact us today to find out more about DSCR loans!

Free Tools For You! 

We also have free tools available! Download the DSCR Quick Calculator to see if a DSCR loan is the best option for your investment properties! 

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