Debt Service Coverage Ratio Calculator (DSCR)

Created by Bogna Szyk
Reviewed by Małgorzata Koperska, MD
Last updated: Aug 12, 2021

This debt service coverage ratio calculator, or DSCR calculator for short, measures whether your incoming cash flows are sufficient to pay back a debt. It is most commonly used by commercial lenders to determine if, thanks to this loan, the borrower will be able to generate an adequate return on investment.

You can start using this debt service coverage ratio calculator straightaway, or read on for a more thorough explanation of how to calculate DSCR and how to interpret the result.

Besides, you may use DSCR calculator with our Cap Rate Calculator to support your investment decisions on the real estate market.

What does DSCR stand for?

DSCR stands for debt service coverage ratio. It is a metric commonly used in commercial lending (instead of personal credit scoring) to establish whether the borrower's investment makes sense from an economic point of view.

In contrast to private purchases, commercial mortgages are taken with one main objective in mind: to generate income. For example, you, as a real estate agent, might consider buying a building in order to rent out the apartments. The rent paid by the tenants will have to cover the loan you've taken (with interest) and provide you with some profit. Your lender won't be interested in your credit history: he will be interested in predicted cash flows to ensure that you won't run out of money to pay him off.

How to calculate DSCR?

Our debt service coverage ratio calculator uses the following formula:

DSCR = NOI / debt service

where:

  • DSCR is the debt service coverage ratio;
  • NOI is the monthly net operating income;
  • debt service is the monthly payment towards paying off your debts.

You can input the value of NOI directly in this DSCR calculator or head to our net effective rent calculator for some more detailed calculation scheme. Alternatively, you can open the advanced mode to determine NOI according to the equation

NOI = (1 - expenses) * (1 - vacancy) * GI

where:

  • GI is the gross income - the monthly rent paid by your tenants;
  • expenses are the monthly expenses for maintenance, repairs or cleaning, expressed as a percentage of the gross income;
  • vacancy is the vacancy rate (how often you don't have a tenant for the apartment), expressed as a percentage of the gross income.

Our debt service coverage ratio lets you easily determine your debt service, too! All you have to do is use the following formula:

debt service = r * debt / [1 - (1 + r)^(-T)]

where:

  • debt is the total amount of your loan;
  • r is the interest rate on that loan,
  • T is the number of years in which you have to pay the loan back.

Minimum acceptable DSCR

Your lender will probably use the DSCR to decide whether you should get the loan or not. The common minimum acceptable DSCR is 1.20; if you're below this value, you will probably be rejected as a potential borrower. On the other hand, if your DSCR is substantially higher, you might get your loan faster than you'd expect!

Finally, there are other debt-analysis related tools such as the debt to capital ratio and interest coverage ratio in which you can rely for further understanding of the funding structure of your company.

Bogna Szyk
Debt service
Interest rate
%
Term
yrs
Total loan
$
Loan payment
$/
per month
Debt service coverage ratio
NOI (net operating income)
$/
per month
DSCR
x
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