DSCR calculator

The most common error here is a mismatch of periods: annual income over a monthly payment. That turns a DSCR of 1.5 into 18, and 18 looks like a triumph rather than a typo. Multiply the monthly payment by 12 before it goes into the denominator: $24,000 a year is $24000 / 12 = 2000$ a month.

Debt service means principal and interest together. Using interest only makes coverage look stronger than it is, because the part of the payment that retires the loan has been quietly dropped from the test the lender is actually running.

A DSCR of 1.5 means the property earns half as much again as it owes. On $36,000 of NOI and $24,000 of payments, that is $36000 - 24000 = 12000$ of cushion before the loan stops being payable from the building's own income.

Below 1.0 the property does not cover its own loan and the shortfall has to come from somewhere else. Lenders on income property usually set a floor above 1.0, commonly around 1.2, so a 1.2 result sits right at the edge rather than comfortably inside it.

Net operating income is rent minus vacancy minus operating costs, before the mortgage. Cash flow is what is left after the mortgage. Putting cash flow on top of this fraction double counts the debt, once by subtracting it and once by dividing by it, and pushes the ratio far below the truth.

The NOI calculator builds the numerator, and the rental cash flow calculator takes it the step further to what actually lands in the account.

DSCR is the standard sizing test for income property lending, and it is also how a borrower can see how much rent can fall before the loan stops paying itself. Read next to a cap rate, it separates what the property earns from what the financing costs. This is educational material, not financial advice.