DSCR calculator

How DSCR is calculated

DSCR = Net operating income ÷ Annual debt service

Net operating income is the yearly rent, minus an allowance for vacancy, minus every cost of running the property — taxes, insurance, management, repairs, HOA. Annual debt service is the principal and interest across the year. A DSCR of 1.25× means the property produces $1.25 of income for every $1.00 of loan payment.

A worked example

A $350,000 rental brings $3,200 a month, so $38,400 a year. Allow 5% for vacancy and that's $36,480 of effective income. Taxes are $4,200, insurance $1,800, other operating costs $2,400 — $8,400 total — leaving $28,080 of net operating income. With 25% down at 7.25% over 30 years, the loan payments come to roughly $21,500 a year, so DSCR lands near 1.30×: comfortably inside what most programs want.

Those are the calculator's starting numbers. Raise the rate and watch the ratio fall — the property has not changed at all, which is exactly what DSCR is measuring.

Where DSCR misleads

• It is a property test, not an affordability test. A DSCR above 1.20× says the rent covers the loan. It says nothing about whether you can absorb a vacant quarter or a new roof.
• Lenders do not all measure it the same way. Some use principal and interest; others use PITIA, folding taxes, insurance and HOA into the payment. Identical numbers can produce meaningfully different ratios, so ask before comparing quotes.
• Optimistic rent inflates it. DSCR is only as good as the rent assumption underneath it. A market rent estimate that runs $200 high moves the ratio without changing anything real.
• It moves with rates, not with the building. The same property can qualify one month and not the next. That is the metric working correctly, and it is why a rate lock matters.

Common questions

What DSCR do lenders require?

Most DSCR loan programs look for 1.20× or higher, and some will go to 1.00× at worse pricing. Below 1.00× the rent does not cover the loan payment, which is the point at which the property needs money from you every month. KnowVest treats 1.20× and above as healthy, 1.00×–1.20× as marginal, and under 1.00× as a shortfall.

How is DSCR calculated?

DSCR = net operating income ÷ annual debt service. Net operating income is your yearly rent minus a vacancy allowance and every operating cost — taxes, insurance, management, repairs, HOA — but before the mortgage. Annual debt service is the principal and interest you pay across the year.

What is the difference between DSCR and cap rate?

Cap rate deliberately ignores your loan and measures the property on its own; DSCR is entirely about the loan, asking whether the income covers the payments. The same building has one cap rate but a different DSCR for every buyer, because each brings different financing. A strong cap rate with a large loan at a high rate can still produce a DSCR under 1.00×.

Does DSCR include taxes and insurance?

They come out of net operating income, so yes — they reduce the numerator. The denominator is normally principal and interest only. Lenders vary: some use PITIA, which puts taxes, insurance and HOA into the payment side instead. Ask which convention a lender uses before comparing quotes, because the two produce different ratios from identical numbers.