DEBT SERVICE COVERAGE RATIO

Why the Debt Service Coverage Ratio is Crucial in CRE

In a hurry:

Apply it today:

  • How much income is available to pay the debt service

  • Most lenders, under most circumstances, will require 1.20x, meaning there is 20% more income than annual debt service

By the end of this video you’ll learn:

  • What is Debt Service Coverage Ratio?

  • How is it calculated?

  • How is it applied (by lenders and borrowers)?

  • Important considerations, benchmarks and industry practices.

 

Have a few minutes:

 

There are few loan metrics more important than the Debt Service Coverage Ratio (DSCR), especially in commercial real estate.

 

The DSCR is used by lenders to measure how much a real estate investor can borrow. Using the property’s net operating income (actual and/or potential), this ratio helps lenders and borrowers understand if there is enough income to pay for the loan and, indirectly, how much money to lend or borrow.

 

DSCR is crucial for all real estate investors because it helps them estimate how much equity they need and compare affordability across different loans.

 

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