DSCR calculator
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The formula, a worked example, and the specific way this measure gets misquoted.
How it works
Debt service coverage ratio is operating income divided by the year's mortgage payments. It is the test a lender applies to decide whether the property can carry the loan on its own.
The formula
DSCR = net operating income / annual debt service
- Enter rent and running costs to establish NOI.
- Enter the loan details on the mortgage tab.
- Read DSCR; 1.25x or better is the usual lending floor.
Worked example
| Item | Value |
|---|---|
| Net operating income | $14,900.00 |
| undefined | $16,580.40 |
| DSCR | 0.90× |
| Break-even occupancy | 104.34% |
The mistake to avoid
Computing it on gross rent instead of net operating income. Rent before costs always clears the bar, which is why a loan that looked comfortable on a spreadsheet gets declined on the lender's own figures.
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What is the difference between rental yield and cap rate?
Cap rate is net operating income divided by the property's value, and it deliberately ignores financing. Net yield divides the same income by what you actually spent to acquire the property, including stamp duty and fees. Cap rate compares buildings; net yield compares your deals. Neither accounts for the mortgage — that is cash-on-cash return.
Should buying costs be included in rental yield?
For net yield, yes. Stamp duty, legal fees and renovation are money you spent to own the asset, so measuring income against price alone flatters the result — by a full percentage point in markets with high transfer taxes. This calculator shows gross on price and gross on total side by side so the gap is visible rather than assumed.