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DSCR Calculator

Use this free DSCR calculator to work out your debt service coverage ratio — the number lenders check first on a property or business loan. Enter your net operating income and your total debt service, in annual or monthly figures, and the tool gives the ratio plus a plain reading of whether the income comfortably covers the loan payments.

How it works

The debt service coverage ratio, or DSCR, measures whether a property or a business earns enough to pay its loans. It is the single number a lender looks at first when deciding whether a rental property or a commercial loan is affordable. If the income comfortably covers the loan payments, the loan is safe; if it barely covers them, one empty month or one big repair can push the borrower into trouble. The ratio turns that judgement into a number anyone can read.

Each input has a clear job. Net operating income (NOI) is the income left after the ordinary costs of running the property or business — maintenance, management, insurance, utilities, and vacancies — but before loan payments and income tax. For a rental property, that is the rent collected minus the running costs. For a business, it is the operating profit before interest and tax. Total debt service is everything paid to lenders in the same period: the principal and the interest on every loan attached to the property or business, added together. Both figures must cover the same period — annual with annual, monthly with monthly — or the ratio is meaningless, which is why the calculator offers both modes.

The formula is a simple division, and the answer is read as "times". A DSCR of 1.25 means the income is 1.25 times the loan payments — it covers them with 25% to spare. A DSCR of 1.0 means income exactly equals the loan payments, with nothing left over. A DSCR below 1.0 means the income does not even cover the payments, so the borrower must find money from elsewhere every month. That is the core of the ratio: it is not a profit figure, it is a cushion figure, showing how much slack sits between the income and the bill.

Lenders read the result in bands. Below 1.0 is a warning sign: the property or business cannot service its own debt, and a lender will almost always refuse new lending on those figures. From 1.0 to 1.25 is tight: the payments are covered, but there is little room for a vacancy, a repair, or a rate rise, so many lenders will ask for a bigger deposit, a higher rate, or a guarantor. At 1.25 and above is the comfortable zone most lenders look for on a rental property loan — the income covers the payments with a quarter or more to spare, which absorbs the normal ups and downs of letting a property. Some lenders ask for 1.3 or 1.4 on riskier property, and some accept 1.2 on a strong application, but 1.25 is the widely used benchmark.

Because the ratio is so simple, it is easy to test "what if" questions with it. What happens if the rent drops by 10%? Reduce the NOI by 10% and see whether the DSCR stays above 1.25. What happens if the loan rate rises by one point? Work out the new debt service and check again. What if one unit stands empty for two months? The calculator makes each test a ten-second job, and the answers show exactly how much slack a deal really has. Remember, though, that DSCR is a snapshot of one period: a property that looks safe this year can look weak next year if costs rise, so lenders usually ask for a full year of figures and sometimes a projection for the year ahead.

Worked example

A landlord is buying a small block of flats with a loan that costs $96,000 a year in principal and interest. The flats bring in rent of $150,000 a year, and the running costs — maintenance, management, insurance, and an allowance for empty months — come to $30,000 a year. What is the DSCR?

Step 1: Work out the net operating income. $150,000 of rent minus $30,000 of running costs gives an NOI of $120,000 a year.

Step 2: Divide the NOI by the debt service. $120,000 ÷ $96,000 = 1.25.

Step 3: Read the band. A DSCR of 1.25 sits at the start of the comfortable zone: the income covers the loan payments with 25% to spare, which is $24,000 a year of slack ($120,000 − $96,000). Enter the same figures in the calculator — NOI $120,000, debt service $96,000, annual mode — and it returns exactly DSCR 1.25 with the "comfortable" reading. In monthly terms the same deal is $10,000 of NOI against $8,000 of payments, which also gives 1.25. If the rent fell by 10% to $135,000, the NOI would drop to $105,000 and the DSCR to 1.09 — inside the tight band, and a lender would very likely ask for better terms.

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