Debt service coverage ratio (DSCR)
A property's net operating income divided by its annual loan payments. A ratio above 1.0 means income covers the debt; lenders usually set a minimum, often around 1.2 to 1.25 for commercial loans.
Also called: DCR, debt coverage ratio, debt service coverage
Related terms
A property's yearly income minus operating expenses, before mortgage payments and income taxes. It is the base number for cap rate and many commercial valuations.
An investment property loan qualified on the rental income the property produces rather than the borrower's personal income. Lenders look at whether rent covers the payment by a set ratio.
The money left each month after collecting rent and paying all expenses, including the mortgage. Positive cash flow means the property pays for itself with some left over.
Net operating income divided by the property's price or value. It shows the yearly return before financing and is used to compare properties and estimate value.
Using borrowed money to buy more property than you could with cash alone. It can raise returns when values and rents rise and magnify losses when they fall.