Debt Service Coverage Ratio (DSCR)

Debt service coverage ratio tells a lender how many times over a property's net operating income pays its yearly loan payments. It uses the same two inputs as cash on cash return from the other side: the investor asks what is left after debt service, the lender asks how safely it is covered.

On the default deal, $40,210 of NOI over $30,698 of debt service is a DSCR of 1.31. Cash flow of $9,512 is the same fact stated in dollars. A DSCR of 1.0 means zero cash flow; below 1.0 means negative.

Commercial lenders require 1.20 to 1.25. Residential DSCR lenders on 1 to 4 unit rentals take a different route: gross rent over the full monthly payment. That yields a bigger ratio for the same property, and 1.0 or more generally qualifies. A property that clears the lender's DSCR with room will have positive cash flow; whether the cash on cash return is good depends on how much cash it took to get there.