If you are financing rental or investment property, one number often decides the deal: the debt service coverage ratio, or DSCR.
What DSCR measures
DSCR asks a simple question: does the property earn enough to cover its debt payments? It is the property's net operating income divided by its annual debt service. A DSCR of 1.25 means the property generates 25% more income than it needs to cover the loan.
Why lenders care
Many investor loans look for a DSCR at or above 1.25 because it signals the property can carry itself with a margin of safety. A ratio below 1.0 means the income does not fully cover the payments — a red flag for both lender and investor.
Improving the ratio
Higher rents, lower operating costs, or a larger down payment all lift DSCR. Running the number before you make an offer keeps you focused on properties that pencil out.
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