How DSCR works

Read 1.5 as coverage rather than as a score. It says that $36,000 of net operating income is one and a half times the $24,000 the loan costs each year, so a third of the income could disappear before the payment stopped being covered.

That framing is the useful one because rental income does disappear in slices: a void month, a tenant who stops paying, a rent that resets lower. The ratio prices how much of that a property can absorb without the owner having to fund the mortgage from elsewhere.

Feed gross rent into the top of the fraction and the coverage looks far healthier than it is, because vacancy and operating expenses have not been taken out yet. Net operating income is gross rent minus vacancy minus operating costs, and it stops deliberately before debt service.

Stopping there is what keeps the ratio meaningful: if the numerator already included the mortgage, dividing by the mortgage would be circular. The NOI calculator builds the top of the fraction, and NOI against cash flow shows what happens below the line.

Everything that moves it moves it from one side or the other. Higher rent, lower vacancy and cheaper operating costs raise the numerator. A bigger loan, a higher rate or a shorter amortisation raise the denominator, which is why the same property can present very different coverage to two lenders.

That is also the lever an owner has after purchase: refinancing to a longer term lowers annual debt service and raises coverage without the building changing at all. The loan payment calculator shows how term and rate move the denominator.

A lender uses DSCR as a test with a threshold, often 1.2, and sizes the loan so the ratio clears it. An owner should read it as a stress measure: coverage of 1.5 means a third of income can vanish, coverage of 1.09 means less than a tenth can. Neither reading tells you whether the price was right, which is what cap rate against DSCR separates. The DSCR calculator runs the ratio for any income and payment pair. This is educational material, not financial advice.