DSCR DefinitionDSCR or Debt Service Coverage Ratio is a ratio that determines a mortgaged property’s ability to cover monthly payments. It is calculated by taking the NOI (annual net operating income) and dividing it by the annual mortgage payments. A ratio of less than 1.0 means that there is not enough cash flow to cover required debt payments. Most lenders like to see a debt service coverage ratio of at least 1.20 and higher. From the lender's viewpoint, they want to make sure that the income generated from the property can pay for the loan. Different commercial property types have different debt service coverage ratio requirements. When talking to your Commercial Mortgage Broker or Commercial Lender, ask them what their requirements are for the property you are considering buying. This will help you determine how much you can offer to pay for the property; not necessarily what it is listed for! Remember...everything in real estate is negotiable!
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