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Debt-Service Coverage Ratio - DCSR
What does it mean?
A ratio often used by bank loan officers when making loans to perspective income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations. Calculated by:
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In Other Words...
A DSCR of less than 1.0 would be a situation where there would actually be a negative cash flow. A DSCR of say .95 would mean that there is only enough net operating income (NOI) to cover 95% of the mortgage payment. This would mean the borrower would have to come up with cash out of his or her personal budget every month to keep the project afloat. Generally, lenders frown on a negative cash flow. However, some lenders will allow a negative cash flow if the borrower has strong outside income.
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Debt Service
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