DSCR
Debt service coverage ratio is NOI divided by annual debt service. It measures whether the property income can carry the loan before investor distributions.
Why it matters
DSCR changes what a disciplined buyer can pay, how much debt the asset can safely carry, and whether the return is coming from operations or fragile assumptions.
Formula
DSCR = net operating income / annual debt service.Worked example
If NOI is $180,000 and annual debt service is $150,000, DSCR is 1.20x. That is thin if taxes, vacancy, or renewal rates move against you.
How investors read it
Debt should make a solid deal more efficient, not hide a weak one. If the asset fails unlevered, leverage usually makes the failure arrive faster.
Common mistakes
- · Treating the metric as a verdict instead of a screen.
- · Using broker-package assumptions without checking the source documents.
- · Ignoring taxes, capex, vacancy, financing terms, and timing.
Use current local data and source documents. Realist should show assumptions and date-stamp market inputs because stale inputs create fake precision.