The DSCR formula
DSCR = net operating income / annual debt service
If a property produces $75,000 in NOI and annual debt payments total $60,000, the DSCR is 1.25x. That means the income covers the debt obligation by 25%.
Why lenders care
Lenders use DSCR to evaluate risk. The more cushion a property has between NOI and debt service, the more resilient the loan appears. Thin DSCR means a modest drop in rent or rise in expenses could create stress quickly.
Why investors should care too
Even if a deal clears the lender’s minimum threshold, a weak DSCR can still be a bad fit for the buyer. It may produce too little margin for error, especially in volatile markets or on properties with deferred maintenance.
How Dealarc helps
Dealarc lets investors see DSCR next to NOI, cash flow, and other return metrics, which is much more useful than treating it as a standalone pass-fail number.