Lesson 17: What is Debt Service Coverage Ratio or DSCR?
In this video, we're gonna talk about your Debt Service Coverage Ratio. You may have seen it as DSCR, and that's exactly what it means. So, really this is the ratio of cash that you have available to pay your debt. So, the calculation is net operating income over your total debt service. So, you may remember from another video, and if you haven't seen it, please check it out.
Debt service is your principle and interest combined. So, a DSCR of one means that there's exactly enough net operating income to cover your debt service. So, an ideal debt service coverage ratio is 1.25 or higher. So, properties with a DSCR that's really close to one or even less are really vulnerable to revenue dips or increased expenses.
And what that can result in is your inability to service your debt. Which will then result in potential capital calls to your investors, or even worse, the defaults on the loan, the calling of the property. Well, hopefully that was helpful.
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