Finance · 103 calculators
Debt Service Coverage Calculator
Lenders on income producing property care about one question above all: does the property earn enough to make the payments. Debt service coverage ratio is that question turned into a single number.
Debt service coverage ratio
1.2177
- Net operating income
- $88,800.00
- Annual debt service
- $72,922.37
- Debt yield
- 9.87%
- Largest loan at 1.25 coverage
- $876,767.95
Values update as you type. This calculator covers the single scenario its formula assumes — see Common Mistakes for what it leaves out.
The formula this calculator uses
DSCR = NOI / annual debt service
- DSCR
- Debt service coverage ratio, how many times over the income covers the debt
- NOI
- Net operating income, gross rent less vacancy less operating costs
- ADS
- Annual debt service, twelve times the monthly loan payment
How to check the result by hand
- 1
Gross up the rent to a year
Multiply the monthly rent by twelve. Twelve thousand a month gives 144,000 of gross annual rent before any allowance for empty months.
- 2
Take out vacancy to get effective gross income
Multiply by one minus the vacancy rate. At 5 percent, 144,000 becomes 136,800. This is the income you should underwrite, not the income a fully let building happens to produce today.
- 3
Subtract operating expenses
Remove management, maintenance, insurance and property tax, but not the mortgage. Costs of 48,000 leave 88,800 of net operating income.
- 4
Work out the annual debt service
Compute the monthly payment on the loan and multiply by twelve. A 900,000 loan at 6.5 percent over 300 months is 6,076.86 a month, so 72,922.37 a year.
- 5
Divide and read the cushion
88,800 divided by 72,922.37 is 1.2177. Invert it to say it plainly: income could drop by roughly 18 percent before it failed to cover the loan.
For worked examples, common mistakes and the limits of this formula, read the full How To Calculate Debt Service Coverage page.