Debt service coverage ratio (DSCR) is the number investment property lenders lean on hardest. It answers one question: does the property's income cover its payment with room to spare?
Understanding how it's calculated lets you improve it deliberately before you apply : sometimes the difference between a decline and an offer.
The calculation
DSCR equals the property's net operating income (NOI) divided by the annual debt service (the payments on the proposed financing). NOI is rental income minus operating expenses : before the payment itself.
A DSCR of 1.0 means income exactly covers the payment. Lenders typically want margin above that; how much above depends on the lender, property type, and market.
What moves your DSCR
- Raising documented income : filling vacancies, documenting market rents properly
- Reducing operating expenses with documentation (not by making expenses disappear)
- Larger equity contribution : less borrowed means lower debt service
- Longer amortization : lower payments, though more total cost over time
Documentation is half the battle
A DSCR built on actual, documented rent : leases, bank deposits, tax returns : is worth far more than one built on estimates. If your rents are paid in cash or undocumented, start paper-trailing them well before you apply.
Frequently Asked Questions
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If this topic relates to a funding need you have, you can begin a funding request through Kennify's financing partner at any time.