3 Types of Commercial Loans

DSCR ?

A Debt Service Coverage Ratio (DSCR) greater than 1.25x means that the property generates at least 25% more Net Operating Income (NOI) than the annual money required to pay the mortgage (principal + interest). Lenders use this ratio to measure a property’s ability to cover its debt and evaluate the risk of default.

DSCR = NOI / Annual Debt Service

Net Operating Income (NOI): Gross Rental Income minus all operating expenses (property taxes, insurance, maintenance, management fees, utilities). Note: Mortgage payments and capital expenditures are not subtracted here.
Annual Debt Service: Total required payments for principal and interest over a 12-month period.