Debt Service Coverage Ratio (DSCR)
Net operating income divided by debt payments — can the property pay its own mortgage?
DSCR answers the most important question for any rental: does this property make enough money to cover its loan payments? A DSCR of 1.0 means income exactly equals debt payments (breakeven). Below 1.0, you're feeding the property from your pocket every month. Above 1.25, you have a healthy buffer. Most lenders require 1.2+ for investment property loans.
DSCR = Net Operating Income (NOI) / Annual Debt Service NOI = Gross Rent - Operating Expenses (taxes, insurance, maintenance, management, vacancy) Debt Service = Annual Mortgage Payments (principal + interest)
DSCR is 20% of the deal score (BRRRR only). Kaison flags P90 DSCR < 1.0 as a CRITICAL risk — hard constraint that forces NO_GO regardless of score.
Monthly rent: $1,800. Monthly expenses (no mortgage): $600. NOI: $14,400/yr. Annual mortgage: $10,800. DSCR: 14,400 / 10,800 = 1.33. Healthy — property covers its debt with 33% margin.
Banks care about DSCR more than you do. If you plan to refinance into a DSCR loan (no income verification), you'll need 1.2+ minimum. Target 1.25+ and your lender options open up dramatically.
Net Operating Income (NOI)
Gross income minus operating expenses, BEFORE debt service.
Cash-on-Cash Return (CoC)
Annual cash flow divided by total cash invested — your return on actual dollars deployed.
Vacancy Rate
Percentage of time a rental property sits empty between tenants.
Return on Investment (ROI)
Total return (including equity) as a percentage of total investment.
Educational content only. Consult a CPA or attorney for advice specific to your situation.