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- What is DSCR and Why Do I Need It?
What is DSCR and Why Do I Need It?
It's not new, but it's a trendy lending buzzword
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What is DSCR and Why Do I Need It?
Debt Service Coverage Ratio is the measurement of a property’s cash flow compared to its ability to repay debt. DSCR can be used to analyze companies, or other projects, but in this case we are confining our thoughts to a particular rental project.
Take Away. If the DSCR calculation is less than 1, you will have cash flow problems. If less than 1.2, you need things to be practically perfect. If above 1.2, you will likely be able to service the debt on your project and cover your other ownership expenses.
So how do you calculate it?
Here’s the formula: DSCR = NOI / Total Debt Service.
NOI is your net operating income. More on this.
Total Debt service includes both principle and interest.
If you are going to buy a cash-flowing property - DSCR is one way to assure it actually does that.

