Quick Answer
DSCR (Debt Service Coverage Ratio) in real estate measures whether a rental property generates enough income to cover its debt payments. Formula: Monthly Rent ÷ (Mortgage + Taxes + Insurance + HOA). A DSCR of 1.0 means rent exactly covers debt. 1.25 means 25% cushion. Lenders require 1.0-1.25 minimum.
What is DSCR in Real Estate?
DSCR Definition for Real Estate
DSCR stands for Debt Service Coverage Ratio. In real estate investing, it's the most important metric for determining if an investment property can pay for itself.
The DSCR ratio tells you: "Does this property make enough rent to cover all its monthly debt payments?"
The DSCR Formula
Step-by-Step Calculation:
Step 1: Calculate Monthly Rental Income
Example: $3,500/month
Step 2: Add Up Total Monthly Debt
Step 3: Divide Rent by Debt
What DSCR Numbers Mean
Property generates 25%+ more income than debt. Qualifies for best loan terms.
Property covers debt with small cushion. Most lenders accept. May require higher down payment.
Property doesn't fully cover debt. Special programs available with compensating factors.
Property loses money monthly. Hard to finance. May need significant down payment or rate buy-down.
Real-World Examples
✓ Good Deal (DSCR 1.40)
Property cash flows $1,200/month
Qualifies easily. Best loan terms available.
✗ Marginal Deal (DSCR 0.85)
Property loses $500/month
Hard to finance. Needs higher down payment or better rate.
Why DSCR Matters for Real Estate Investors
Loan Qualification
Lenders use DSCR to approve loans. 1.0+ qualifies. Higher DSCR = better terms and rates.
Property Selection
Calculate DSCR before buying to ensure property will cash flow. Avoid properties with DSCR below 1.0.
Risk Assessment
Higher DSCR = more cushion if rent drops or expenses rise. 1.25+ protects against vacancies.
Portfolio Building
Strong DSCR properties are easier to refinance and use for scaling your portfolio.
Calculate Your Property's DSCR
Use our free calculator to see if your property qualifies for a DSCR loan. Get instant results.