Here is how to calculate Debt Service Coverage Ratio (DSCR).
I will use an income statement from an actual property in order to calculate the DSCR. To view the full income statement, Simply click here.
The first step is to calculate the following:
Annual Gross Scheduled Income
Annual Vacancy
Annual Expenses
Next subtract the annual Expenses and annual Vacancy from the annual Gross Scheduled Income. This gives you Annual Net Operating Income.
Next, divide Annual Net Operating Income by Annual Debt Service (annual mortgage payments). This gives you the Debt Service Coverage Ratio. A DSCR of 1.00 or below is generally frowned upon, because the property does not make enough money to pay the mortgage (or barely pays it).
The debt service coverage ratio for this property is 0.79.
If the income were higher, the property could have a positive Debt Service Coverage Ratio.
Be sure to check out my article What is Debt Service Coverage Ratio.
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