Debt Service Coverage Ratio

Glossary

Debt Service Coverage Ratio

DSCR shows whether a multifamily property’s NOI can cover annual debt payments, helping leaders assess cash flow and financing risk.

Definition

Debt Service Coverage Ratio (DSCR) measures whether a property’s net operating income can cover its debt payments. In real estate, it is commonly calculated as net operating income (NOI) divided by annual debt service, including principal and interest. A DSCR above 1.0 means the property generates more income than its required debt payments; a lower ratio signals tighter cash flow.

Example

A 200-unit apartment community produces $900,000 in annual NOI and has $720,000 in annual principal and interest payments. Its DSCR is 1.25 ($900,000 ÷ $720,000), meaning the property generates $1.25 of NOI for every $1.00 of debt service.

Why It Matters?

DSCR helps operations leaders connect day-to-day performance—rent collections, vacancy, concessions, and operating expenses—to the property’s ability to meet loan obligations. Because lenders and owners use DSCR when evaluating financing, refinancing, and risk, changes in NOI can affect capital plans, budgeting, and asset strategy.

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