How this number is made
Debt-service coverage asks whether the building’s income, before the mortgage, covers the mortgage. Lenders often want a number above 1.00, sometimes 1.20 or 1.25. The hurdle is theirs, not a law.
- NOI comes from the NOI page, or from the lender’s version of it.
- Debt service is principal and interest for the year. Some lenders include mortgage insurance.
Formula
DSCR = net operating income ÷ annual debt service.
Worked example
With the figures already in the form, debt-service coverage is 1.27.
Questions
What does below 1 mean?
The building does not produce enough operating income to pay the debt. You would be feeding it from somewhere else.
Is 1.25 required?
Only if that lender says so. Read the term sheet. This page does not have a universal cutoff.