Debt Service Coverage Ratio tells lenders whether your property can cover its debt. Enter NOI and annual debt service. No signup required.
DSCR is one metric. LandForge calculates cap rate, cash-on-cash, IRR, and gives you a complete deal verdict -- all in seconds.
DSCR (Debt Service Coverage Ratio) measures whether a commercial property generates enough income to cover its debt payments. It's the single metric that determines whether a lender will approve your loan.
A DSCR of 1.50x means the property earns 50% more than needed to make mortgage payments. A DSCR of 0.90x means the property falls short by 10% -- you'd need to cover the gap from other income. Lenders won't finance that.
The formula is straightforward:
DSCR = Net Operating Income (NOI) / Annual Debt Service
Net Operating Income is your gross rental income minus all operating expenses (property taxes, insurance, maintenance, management fees, vacancy). It does not include mortgage payments -- that's the whole point. NOI measures what the property earns before debt.
Annual Debt Service is the total of all mortgage payments for the year, including both principal and interest. If your monthly mortgage is $8,333, your annual debt service is $100,000.
Example: A property with $150,000 annual NOI and $100,000 in annual mortgage payments has a DSCR of 1.50x. For every dollar of debt, the property generates $1.50 of income.
DSCR is the lender's margin of safety. A higher DSCR means more cushion if rents drop, vacancies increase, or expenses rise. Different loan types have different minimums:
| Loan Type | Minimum DSCR | Notes |
|---|---|---|
| SBA 504 / 7(a) | 1.15x | Most lenient; government-backed, owner-occupied properties |
| Conventional | 1.25x | Standard commercial bank requirement |
| CMBS | 1.30x+ | Securitized loans; stricter underwriting |
| Bridge / Hard Money | 1.00x - 1.10x | Short-term, higher rates compensate for lower coverage |
| Agency (Fannie/Freddie) | 1.25x - 1.30x | Multifamily only; competitive rates at higher DSCR |
Negotiating power matters. Meeting the minimum gets you approved. Exceeding it (1.40x+) gets you better terms -- lower rates, higher LTV, fewer reserves. Every tenth of a point above the minimum is leverage in your favor.
| DSCR | Rating | What It Means |
|---|---|---|
| 1.50x+ | Strong | Healthy cushion. Best loan terms. Low risk of default. |
| 1.25x - 1.50x | Adequate | Meets most lender requirements. Reasonable safety margin. |
| 1.00x - 1.25x | Tight | Barely covers debt. Vulnerable to vacancies or expense spikes. Limited financing options. |
| Below 1.00x | Negative Cash Flow | Property doesn't cover debt. Most lenders will decline. Investor must fund the gap. |
Each metric answers a different question about the deal. Use them together:
| Metric | Formula | What It Measures | Calculator |
|---|---|---|---|
| DSCR | NOI / Debt Service | Can the property cover its debt? | You're here |
| Cap Rate | NOI / Property Value | Unleveraged yield on the asset | Calculate → |
| NOI | Income - Expenses | Property's operating profitability | Calculate → |
| Cash-on-Cash | Cash Flow / Cash Invested | Your actual cash yield after financing | Calculate → |
A common trap: A property can have a great cap rate but a terrible DSCR if you over-leverage it. Cap rate ignores debt; DSCR is all about debt. A 7% cap rate property with aggressive financing (high LTV, short amortization) can easily end up below 1.0x DSCR. Always check both.
If your DSCR is too low for financing, you have two levers:
Increase NOI: Raise rents to market, reduce vacancy through better marketing or tenant retention, cut unnecessary expenses, add ancillary income (parking, laundry, storage). Every dollar of NOI improvement flows directly to DSCR.
Reduce Debt Service: Put more money down (lower LTV), negotiate a lower interest rate, extend the amortization period, or look at interest-only periods. A 30-year amortization vs. 25-year can meaningfully improve DSCR.