Free DSCR Calculator | Ecodweller

A: Net Operating Income (NOI) represents a property’s profitability before accounting for financing costs (debt service) and income taxes. It’s calculated as: NOI = (Gross Potential Rent - Vacancy Loss + Other Income) - Total Operating Expenses. This calculator computes NOI by taking your inputs for rent, vacancy, other income, and various operating expenses (like taxes, insurance, utilities, maintenance, management fees). It specifically excludes debt payments, depreciation, and capital expenditures from the NOI calculation, which is the standard practice.

A: You should include the total monthly Principal and Interest (P&I) payments for all loans secured by the specific property or business being analyzed. Do not include property taxes or insurance premiums here if they are paid separately or escrowed (as those are operating expenses included in the NOI calculation). This calculator multiplies the monthly P&I by 12 to get the Annual Debt Service.

A: While lender requirements vary, a DSCR of 1.25 or higher is generally considered good or acceptable for most commercial real estate loans. A DSCR above 1.50 is often seen as strong. A ratio between 1.10 and 1.24 might be considered marginal, requiring closer scrutiny. A DSCR below 1.10 (and especially below 1.0) indicates potential difficulty in covering debt payments and is considered weak or high-risk.

A: Include all regular expenses necessary to maintain the property’s operations. Common examples are: property taxes, property insurance, owner-paid utilities, repairs and maintenance, property management fees, landscaping, administrative costs, and advertising. Exclude: Debt service (principal & interest – entered separately), depreciation (it’s a non-cash expense), income taxes, and capital expenditures (large, infrequent improvements like a new roof or HVAC system – though some lenders may require a reserve for capital expenditures to be factored in separately).

A: A DSCR below 1.0 means the property’s Net Operating Income is insufficient to cover its annual debt payments. This indicates negative cash flow after debt service and represents a high risk for lenders. Securing financing would be very difficult without significant changes, such as increasing income, decreasing expenses, restructuring debt, or providing substantial additional collateral or down payment.

A: You can improve DSCR by either increasing Net Operating Income (NOI) or decreasing Annual Debt Service. Strategies include:

• Increasing Income: Raising rents (if market allows), reducing vacancies through better marketing or tenant screening, adding revenue streams (laundry, parking, storage fees).
• Decreasing Expenses: Negotiating lower service contracts, appealing property taxes, improving energy efficiency to reduce utility costs, managing repairs more efficiently.
• Reducing Debt Service: Refinancing the debt at a lower interest rate or longer amortization period (though this might increase total interest paid over time), or paying down principal more aggressively if possible (though this doesn’t affect the standard DSCR calculation which uses scheduled payments).

A: While mathematically similar concepts exist (like Debt-to-Income ratio), this specific calculator is designed for income-producing properties or businesses where Net Operating Income (NOI) is the standard measure of cash flow available for debt. It’s not typically used for personal home mortgages, which rely more on personal income verification and DTI ratios.