Formula of Debt Service Coverage Ratio.

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Accepted Answer

Debt Service Coverage Ratio is calculated by dividing net operating income by total debt service.

DSRC = Net Operating Income / Total Debt Service
Net Operating Income includes all revenue generated from the property minus operating expenses.
Total Debt Service includes all principal and interest payments on the property's debt.
A ratio of 1 or higher indicates that the property generates enough income to cover its debt obligations.
Lenders typically require a minimum DSRC of 1.25 to 1.5.
Example: A property has a net operating income of $100,000 and total debt service of $80,000. DSRC = 1.25.

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