Question of the day
2026-07-20
What is DSCR, how is it calculated, and what do lenders typically require?
Answer it out loud first — like you would in the room. Then check yourself:
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Model answer
Debt service coverage ratio = NOI / annual debt service (interest plus scheduled principal), measuring how comfortably property cash flow covers the loan payments. Example: $600K of NOI against $480K of annual debt service = a 1.25x DSCR - the property generates 25% more than it owes each year. Commercial lenders typically require minimums around 1.20x-1.30x on stabilized assets, varying by property type and lender (a rule of thumb, not a fixed rule); riskier sectors like hotels carry higher hurdles. DSCR is the binding sizing constraint when interest rates are high, because larger payments shrink the loan that a given NOI can support.
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