DSCR & Cap Rate Calculator
Evaluate commercial investment properties with Debt Service Coverage Ratio and capitalization rate metrics.
Property Parameters
Taxes, insurance, maintenance, management, utilities, HOA
Debt Service Coverage Ratio
Healthy cash flow with comfortable margin above debt service obligations.
Net Operating Income
$85,000
Gross Income minus OpEx
Annual Debt Service
$63,610
$5,300.84/mo × 12
Cap Rate
8.50%
NOI ÷ Purchase Price
Annual Cash Flow
$21,390
NOI minus Debt Service
What Is the Debt Service Coverage Ratio (DSCR)?
The Debt Service Coverage Ratio, or DSCR, measures whether a property generates enough net operating income to cover its annual mortgage payments. It is the single most important metric commercial lenders use to evaluate investment property loans. A DSCR of 1.0 means the property breaks even — income exactly covers debt. Above 1.0 means positive cash flow; below 1.0 means the property loses money each year.
DSCR and Cap Rate Formulas
DSCR
DSCR = Net Operating Income ÷ Annual Debt ServiceCap Rate
Cap Rate = (NOI ÷ Purchase Price) × 100- Net Operating Income (NOI) = Gross Annual Rental Income minus Operating Expenses (taxes, insurance, maintenance, management, utilities)
- Annual Debt Service = Total of all principal and interest payments over one year
- Cap Rate = The unlevered return on the property, expressed as a percentage of purchase price
Why Lenders Require a Minimum DSCR of 1.25
Commercial lenders typically require a DSCR of at least 1.25, meaning the property must generate 25% more net income than is needed to pay the mortgage. This buffer protects the lender against unexpected expenses — vacancy periods, rent reductions, emergency repairs, or rising interest rates on variable loans. A property at exactly 1.0 has zero margin for error; any disruption turns it into a negative cash flow situation. The 1.25 threshold gives lenders confidence that the investment can absorb normal operational volatility without defaulting.
How to Improve Your Property's DSCR
Increase Rental Income
Raise rents to market rate, add value-add amenities (in-unit laundry, parking, storage), or convert underused space into rentable units.
Reduce Operating Expenses
Shop insurance providers, implement energy-efficient upgrades to lower utility costs, or self-manage to eliminate property management fees.
Lower Debt Service
Negotiate a lower interest rate, extend the loan term, or increase your down payment to reduce the loan amount
Reduce Purchase Price
Negotiate a lower acquisition price. This reduces both the loan amount and improves the cap rate simultaneously.