Real estate & rental
Real Estate Debt Service Coverage Calculator
Works coverage of debt service, where the margin above the payments is the resilience.
Result
An arithmetic tool, not investment advice. Property returns depend on the local market, the condition of the building, financing terms and tax position, none of which a calculator can see. Verify the income and expense figures against actual statements rather than a seller's projection. Break-even occupancy is the more useful figure for judging risk. A property needing 88% occupancy to break even has almost no margin in a soft market, whatever its DSCR looks like at full occupancy.
Get a Free Business AuditHow the calculation works
Net operating income against annual debt service, expressed as a ratio and as the surplus or shortfall in dollars. The dollar surplus is the more useful figure for an owner, because it says how much income could be lost before the property stops covering its own payments, which is a question about resilience rather than a lending test.
What moves the number
- Surplus in dollars, not only the ratio.
- How many vacant months the surplus would absorb.
- Whether capital items are reserved for outside the calculation.
- Rate exposure on variable or maturing debt.
Where this one goes wrong
Convert the surplus into months of vacancy it would survive, because that is the question that matters when a tenant leaves: a property covering its payments with a thin margin cannot absorb a vacant quarter and a major repair in the same year. Debt service coverage also says nothing about capital expenditure, which sits outside net operating income, so a property passing the test can still be unable to fund the roof it needs.
Before you quote
- Translate the surplus into months of vacancy it would cover.
- Reserve separately for capital items, which sit outside this.
- Stress the calculation against a higher rate at refinance.
Questions
About this calculator
What does the surplus actually tell me?
How much income could be lost before the property stops covering its payments. Converting it into months of vacancy it would survive is more useful than the ratio, because that is the form the risk actually takes when a tenant leaves.
Does passing the test mean the property is safe?
Not entirely, because capital expenditure sits outside net operating income. A property comfortably covering its debt service can still be unable to fund a roof or a heating system, and that reserve has to be held separately.
What should I stress test?
The rate at refinance and an extended vacancy, since those are the two events that have ended otherwise sound holdings. A ratio calculated at today's rate on full occupancy describes the best case rather than the range.
The formula
DSCR = NOI / annual debt service; break-even occupancy = (expenses + debt service) / gross rent
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How to use this calculator
- Gross annual rent ($). Enter your own figure; the page starts at $42,000.
- Vacancy factor (%). Enter your own figure; the page starts at 7%.
- Annual operating expenses ($). Enter your own figure; the page starts at $13,600.
- Annual debt service ($). Enter your own figure; the page starts at $22,600.
- Target DSCR. Enter your own figure; the page starts at 1.25.
The result updates as you type, so you can try a figure, see what it does to dscr, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Gross annual rent | $42,000 |
| Vacancy factor | 7% |
| Annual operating expenses | $13,600 |
| Annual debt service | $22,600 |
| Target DSCR | 1.25 |
What comes out
| Result | Value |
|---|---|
| DSCR main result | 1.1 |
| Net operating income | $25,460 |
| Income above break-even | $2,860 |
| Occupancy needed to break even | 86.2% |
| Debt service the target allows | $20,368 |
DSCR of 1.1 with $2,860 of income above the debt. The property breaks even at 86.2% occupancy, which is the number that tells you how much vacancy it can absorb.
How sensitive the answer is
Holding everything else steady and changing only gross annual rent, this is what happens to dscr. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Gross annual rent ($) | DSCR |
|---|---|
| $21,000 | 0.3 |
| $31,500 | 0.7 |
| $42,000 example above | 1.1 |
| $63,000 | 2.0 |
| $84,000 | 2.9 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Gross annual rent ($)
- A money amount, starting at $42,000.
- Vacancy factor (%)
- A percentage, between 0 and 50, starting at 7%.
- Annual operating expenses ($)
- A money amount, starting at $13,600.
- Annual debt service ($)
- A money amount, starting at $22,600.
- Target DSCR
- A number, between 0.5 and 3, starting at 1.25.
What the results tell you
| Result | What it is |
|---|---|
| DSCR | The headline result. A decimal figure. |
| Net operating income | A money figure. |
| Income above break-even | A money figure. |
| Occupancy needed to break even | A percentage. |
| Debt service the target allows | A money figure. |
What is not in this number
Property figures here exclude the costs that decide whether a deal works: vacancy, maintenance, management, capital expenditure and the transaction costs at both ends. A return that looks strong before those frequently does not survive them.
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