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DSCR calculator

Does the rent cover the loan, and by how much? See the ratio lenders look at and the largest loan the income supports.

The DSCR formula

DSCR = net operating income ÷ annual debt service

Net operating income is rent minus vacancy and operating expenses. Annual debt service is twelve months of principal and interest. A DSCR of 1.00 means the property earns exactly enough to pay the loan. At 1.25, it earns 25% more than the payments.

A worked example

With $2,400 rent, 5% vacancy and $9,000 of operating expenses, NOI is $18,360. A $180,000 loan at 7% over 30 years costs about $1,198 a month, or $14,371 a year. DSCR is $18,360 ÷ $14,371 = 1.28.

What lenders want to see

Minimums of 1.20 to 1.25 are common for investment property loans, and some programs go lower with a larger down payment or a higher rate. Requirements vary by lender.

Be aware that many DSCR loan programs use a simpler version of the ratio: gross rent divided by the full monthly payment including taxes, insurance and HOA dues. Ask your lender which calculation they use before you rely on a number.

Questions

What is a good DSCR for a rental property?

Most lenders look for at least 1.20 to 1.25. Above 1.5 is considered strong. Below 1.0 means the rent does not cover the loan payments.

How can I improve my DSCR?

Raise income, lower expenses, or reduce the payment with a larger down payment, a lower rate or a longer term. The calculator shows the largest loan that still meets a 1.25 ratio.

Is DSCR the same as cap rate?

No. Both start from net operating income, but cap rate divides it by the price plus any up-front repairs, while DSCR divides it by the loan payments. Cap rate describes the property; DSCR describes whether a particular loan fits it.

Terms used here

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