What is DSCR?
Debt Service Coverage Ratio (DSCR) = Net Operating Income (NOI) ÷ Total Annual (or Monthly) Debt Service.
It answers a simple question: “For every dollar of loan payment, how many dollars of property cash flow do I have?”
NOI = income from the property after vacancy and operating expenses (but before debt service, income taxes, and capital expenditures).
Debt service = principal + interest payments for the loan period you’re evaluating.
Example (annual):
NOI = $300,000
Debt service = $200,000
DSCR = 300,000 ÷ 200,000 = 1.50
(you have $1.50 of cash flow for every $1.00 of payment)
How to calculate DSCR (step by step)
Estimate gross income (rents + ancillary income).
Apply vacancy (e.g., 5–10% typical, hotels vary by season).
Subtract operating expenses (repairs, payroll, utilities, management, insurance, taxes).
Result = NOI.
Add up debt service for the same period (monthly or annual).
Divide: DSCR = NOI ÷ Debt Service.
Tip: If you’re evaluating a hotel or seasonal property, calculate DSCR on a trailing-12 (TTM) basis and also at stabilized year. This avoids “one-month looks” that can be misleading.
Debt Service Coverage Ratio (DSCR) = Net Operating Income (NOI) ÷ Total Annual (or Monthly) Debt Service.
It answers a simple question: “For every dollar of loan payment, how many dollars of property cash flow do I have?”
NOI = income from the property after vacancy and operating expenses (but before debt service, income taxes, and capital expenditures).
Debt service = principal + interest payments for the loan period you’re evaluating.
What is a “good” DSCR?
Estimate gross income (rents + ancillary income).
Apply vacancy (e.g., 5–10% typical, hotels vary by season).
Subtract operating expenses (repairs, payroll, utilities, management, insurance, taxes).
Result = NOI.
Add up debt service for the same period (monthly or annual).
Divide: DSCR = NOI ÷ Debt Service.
Tip: If you’re evaluating a hotel or seasonal property, calculate DSCR on a trailing-12 (TTM) basis and also at stabilized year. This avoids “one-month looks” that can be misleading.