# How do you calculate debt service ratio in real estate?

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How to calculate debt service coverage ratio (DSCR) The DSCR calculation is rather simple. A business’s DSCR is calculated by taking the property’s annual net operating income (NOI) and dividing it by the property’s annual debt payment. The DSCR is typically shown as a number followed by x.

## How is debt service ratio calculated?

The debt service coverage ratio measures a company’s ability to make debt payments on time. … It is calculated by dividing a company’s EBITDA (earnings before interest, taxes, depreciation and amortization) by all outstanding debt payments of interest and principal.

## What is debt service ratio in real estate?

Debt Coverage Ratio (DCR)

Debt Coverage Ratio, or DCR, also known as Debt Service Coverage Ratio (DSCR), is a metric that looks at a property’s income compared to its debt obligations. Properties with a DSCR of more than 1 are considered profitable, while those with a DSCR of less than one are losing money.

## What is the debt service formula?

Debt Service Coverage Ratio (DSCR)

The ratio divides the company’s net income with the total amount of interest and principal it must pay. The higher the ratio, the easier for the company to obtain a loan. The formula for calculating the DSCR is as follows: DSCR = Annual Net Operating Income / Annual Debt Payments.

## How do you calculate debt service on a line of credit?

It is calculated by dividing the total net income by the total debt service, using the equation DSCR = total net income / total debt service. Creditors look at this information to assess a debtor’s ability to pay current or new loans.

## How do you calculate debt service coverage for a rental property?

DSCR formula

For example, if a rental property is generating an annual NOI of \$6,500 and the annual mortgage payment is \$4,700 (principal and interest), the debt service coverage ratio would be: DSCR = NOI / Debt Service. \$6,500 NOI / \$4,700 Debt Service = 1.38.

## How do you calculate debt service coverage ratio on financial statements?

The DSCR is calculated by taking net operating income and dividing it by total debt service (which includes the principal and interest payments on a loan). For example, if a business has a net operating income of \$100,000 and a total debt service of \$60,000, its DSCR would be approximately 1.67.

## What is debt service example?

How Does Debt Service Work? For example, let’s say Company XYZ borrows \$10,000,000 and the payments work out to \$14,000 per month. Making this \$14,000 payment is called servicing the debt. … This is the risk that companies take with debt.