The Debt Service Coverage Ratio (DSCR) tells you the relationship between the Net Operating Income (NOI) and the amount necessary to service the debt on the property.
Debt Service Coverage Ratio = Net Operating Income / Debt Service
You have a 10-unit Apartment Building and your NOI is $47,500.
You have a $525,000 mortgage with monthly payments of $3150, which is an annual total of $37,800.
DSCR = NOI / Debt Service
DSCR = 47,500 / 37,800
DSCR = 1.2566
Your debt service coverage ratio is 1.2566, or 125.66%.
Also, this means that after you make the payment of the mortgage from the Net Operating Income, there will be $9,700 left.
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