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Calculate the Debt Service Coverage Ratio to assess your ability to service debt from property income.
DSCR = NOI / Annual Debt Service
The debt service coverage ratio (DSCR) measures whether a property generates enough income to cover its mortgage payments. Lenders use DSCR as the primary underwriting metric for commercial real estate loans. A DSCR of 1.25 means the property produces 25% more income than required to service the debt.
For NNN property investors, DSCR is critical because it determines how much leverage a lender will provide. A strong DSCR means better loan terms, higher loan-to-value ratios, and lower interest rates. Most commercial lenders require a minimum DSCR of 1.20-1.30 for NNN properties, though investment-grade tenants may qualify for lower thresholds.
DSCR = Net Operating Income / Annual Debt ServiceAnnual debt service includes all principal and interest payments on the mortgage over 12 months. If a property generates $180,000 in NOI and the annual mortgage payments total $144,000, the DSCR is 1.25x. Every dollar above 1.0x represents a cushion that protects the lender if income drops.
| Loan Type | Min DSCR | Notes |
|---|---|---|
| Bank / Portfolio | 1.25x | Standard for most CRE loans |
| CMBS | 1.25-1.35x | Higher for conduit loans |
| SBA 504 | 1.15-1.25x | Lower threshold, owner-occupied |
| Credit Tenant NNN | 1.10-1.20x | Investment-grade tenant reduces risk |
| Bridge / Hard Money | 1.0-1.10x | Short-term, higher rate loans |
Most commercial lenders require a minimum DSCR of 1.20-1.30x. This means the property must generate 20-30% more income than the annual debt service. Credit tenant NNN properties may qualify at 1.10-1.20x because the tenant's corporate guarantee reduces risk.
A DSCR below 1.0 means the property does not generate enough income to cover mortgage payments. The borrower must cover the shortfall from other sources. Most loan agreements include DSCR covenants that trigger default provisions if the ratio falls below a specified threshold, typically 1.10-1.15x.
DSCR directly limits how much you can borrow. If a property generates $200,000 NOI and the lender requires 1.25x DSCR, the maximum annual debt service is $160,000. Use the loan payment calculator to convert that into a maximum loan amount based on interest rate and term.
No. DSCR compares NOI to debt service payments. Debt yield compares NOI to the total loan amount (NOI / Loan Amount). Debt yield is a simpler metric that doesn't depend on interest rate or amortization period. CMBS lenders often use both metrics.