What is Debt Service Coverage Ratio (DSCR) in Real Estate?

Hey, rental dreamers! Ever come across “Debt Service Coverage Ratio” (DSCR) in real estate and thought, “Huh, what’s that?” I was totally confused too when I started, so I’m here to break it down like we’re just chatting. It’s a key thing for anyone wanting to buy rentals, and I’ll show you why. Let’s get started!

What’s This DSCR Thing in Real Estate?

Debt Service Coverage Ratio, or DSCR, is just a way to check if your rental property can handle its own expenses. It’s a number you get by taking the rent your place makes every month and dividing it by the costs—like the loan payment, taxes, insurance, and any extra fees (they call that PITIA stuff).

Let’s try an example: Say your rental brings in $2,500 a month, and your costs are $2,000. Divide $2,500 by $2,000, and you get a DSCR of 1.25. That’s a good number! Lenders like to see at least 1.0, but 1.25 or more means your property’s doing great. Wanna test yours? My DSCR Loan Calculator is super quick to use!

Why Does DSCR Matter for Real Estate?

So, why should you care about this DSCR? Here’s what I’ve learned on my rental journey:

• It Gets You a Loan: If you’re eyeing a DSCR loan, this number tells lenders if your property’s worth the risk. A DSCR of 1.2 or higher makes them happy to say yes.
• Shows Your Extra Cash: A DSCR over 1.0 means you’ve got money left after bills—that’s your profit! My Cash Flow Calculator can show you what’s left each month.
• Stops You from Losing Money: I almost picked a property with a DSCR of 0.9—yikes, that’d be a money drain! Knowing your DSCR keeps you safe from bad choices.
• Lets You Keep Buying: Since DSCR loans look at the property, not your personal money, you can add more rentals over time. I’m already thinking about my next one!

A Handy Little Trick

Before I buy, I always check my loan-to-value ratio (LTV) too—it’s how much I borrow compared to the property’s price. Lenders like it low. Try my LTV Calculator to see where you stand!

Ready to Use DSCR for Your Rentals?

DSCR is like your guide to picking winning rentals. Need a roadmap? Grab my free DSCR Loan Checklist—it’s got all my best tips. Got questions? Pop over to X (

@DscRforrentals

) and let’s talk. Let’s make those rental plans happen