Debt service coverage ratio
Net operating income divided by yearly debt payments. A DSCR of 1.25 means the property makes 25% more than it needs to cover the loan. Lenders use it to size loans on rental and commercial properties.
Every term like this one lights up in the step you're on.
Free to set up. No credit card.Part 1 of 4
Why a seller cares
An investor's lender sizes the loan on your rental by DSCR: the net income has to cover the loan payments with a margin. If the rent is too low for the price, the loan shrinks and so does the offer.
Part 2 of 4
A simple example
Your fourplex nets $30,000 a year. The lender wants a 1.25 DSCR, so the most it will lend is a loan whose payments are $24,000 a year.
| The arithmetic | The number |
|---|---|
| Net operating income | $30,000 |
| Divided by 1.25 | $24,000 of annual debt service |
| At 7% over 30 years | A loan of about $300,000, whatever the price |
DSCR caps the loan at what the rent can carry. The buyer covers the rest in cash or not at all.
Part 3 of 4
What people get wrong
That the buyer's income sets their loan. On a DSCR loan, your rent roll sets it.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
One piece of your sale. Here is where all the pieces live.
In your room, this word explains itself where it appears.
Keighbor keeps your whole home sale in one place and defines every term like this one right where you meet it, in the step you're on. Free to set up, with or without an agent.