How to calculate commercial real estate DSCR
Debt service coverage ratio compares property cash flow with the annual principal-and-interest obligation. This tool divides entered net operating income by modeled annual debt service and keeps the loan-payment assumptions visible beside the result.
- DSCR equals annual net operating income divided by annual debt service
- A 1.00x result means modeled NOI equals modeled annual debt service
- Debt yield equals NOI divided by the entered loan amount
- Cash flow after debt equals NOI less modeled annual debt service
Model the debt structure explicitly
Loan amount, rate, amortization, and interest-only structure can materially change annual debt service. The calculator supports amortizing and interest-only scenarios, then estimates the maximum supported loan at the entered target DSCR and financing assumptions.
- Amortizing debt service uses the entered interest rate and amortization period
- Interest-only debt service uses loan amount multiplied by the annual rate
- Maximum supported debt service equals NOI divided by the target DSCR
- The sensitivity table shows how NOI and interest-rate changes affect coverage
Treat the result as a screening model
A lender may normalize income, vacancy, operating expenses, reserves, replacement costs, and loan terms differently. DSCR is one underwriting measure and does not replace a lender's complete credit, collateral, guarantor, environmental, appraisal, or legal review.
- Confirm how the lender defines stabilized NOI and annual debt service
- Include all required property debt when the lender's test requires it
- Stress occupancy, rent, expenses, rates, and refinance assumptions
- Copy or print the generated assumptions with the result so the ratio is auditable
Key takeaways
- Commercial real estate DSCR can be expressed as net operating income divided by annual debt service.
- Debt yield can be expressed as net operating income divided by loan amount.
- The appropriate DSCR depends on loan structure, amortization, cash-flow stability, property risk, and lender policy.
- A transparent DSCR estimate should disclose the NOI, loan amount, interest rate, amortization, payment structure, and target ratio used.