Debt Service Coverage Calculator Formula

Understand the math behind the debt service coverage calculator. Each variable explained with a worked example.

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Formulas Used

Debt Service Coverage Ratio

dscr = net_operating_income / annual_debt_service

Annual Surplus After Debt

surplus = net_operating_income - annual_debt_service

Monthly Surplus After Debt

monthly_surplus = (net_operating_income - annual_debt_service) / 12

Variables

VariableDescriptionDefault
net_operating_incomeNet Operating Income (NOI)(USD)48000
annual_debt_serviceAnnual Debt Service(USD)36000

How It Works

Debt Service Coverage Ratio

DSCR measures the ability of a property to generate enough income to pay its debt obligations.

Formula

DSCR = Net Operating Income / Annual Debt Service

Interpretation

  • DSCR > 1.25: Strong coverage, most lenders are comfortable
  • DSCR = 1.0: Break-even, NOI exactly covers debt payments
  • DSCR < 1.0: Negative cash flow, income does not cover debt
  • Most commercial lenders require 1.20 to 1.35 minimum

    • Worked Example

    A property generates $48,000 NOI with $36,000 in annual debt payments.

    net_operating_income = 48000annual_debt_service = 36000
    1. 01DSCR = $48,000 / $36,000 = 1.33
    2. 02Annual surplus: $48,000 - $36,000 = $12,000
    3. 03Monthly surplus: $12,000 / 12 = $1,000
    4. 04A DSCR of 1.33 means the property earns 33% more than needed to cover debt

    Ready to run the numbers?

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