DSCR — Debt Service Coverage Ratio.

Formula

DSCR = Net Operating Income ÷ Annual Debt Service

A DSCR of 1.00 means the property’s NOI matches its annual debt service, leaving no operating cushion before taxes or other investor-level considerations. A DSCR of 1.25 means NOI is 25% greater than annual debt service. A DSCR below 1.00 means the property’s modeled operations do not fully cover its debt payments.

Why DSCR matters

DSCR connects the property’s operating performance to its financing structure. Unlike cap rate, which evaluates income before debt, DSCR shows whether the income can support the loan attached to the deal.

Lenders commonly consider DSCR when evaluating income-producing properties. The required coverage ratio depends on the lender, loan product, property type, and underwriting terms.

For investors, a higher DSCR generally means more operating room to absorb income shortfalls or expense increases. A lower DSCR means the deal has less cushion if rent, vacancy, repairs, taxes, or insurance move against the assumptions.

DSCR as a 3Y goal

DSCR is one of the goals you can select in a 3Y analysis, alongside cash-on-cash return and cash velocity.

When you choose DSCR as your goal, the 3Y Estimate™ solves for the goal-convergent price supported by your selected coverage target, the property’s modeled income and expenses, and the financing terms.

For example, an investor targeting a 1.25 DSCR is asking:

At what purchase price would this property’s modeled net operating income cover annual debt service with the selected 25% coverage cushion?

The resulting 3Y Estimate is not an appraisal or a market-value opinion. It is the purchase price the selected DSCR goal can support under the current assumptions.

What DSCR does not tell you

DSCR is a financing-coverage measure, not a complete investment decision. It does not by itself tell you:

• whether the asking price is competitive in the market;
• whether property-condition assumptions are realistic;
• whether future rent growth or appreciation will occur;
• whether the location supports the investment; or
• whether the deal meets your broader financial strategy.

Use DSCR to understand debt coverage. Use the 3Y Estimate™ to see the goal-convergent price supported by your selected goal and assumptions.