Debt Service Coverage Ratio (DSCR) measures whether a property generates enough income to cover its loan payments.
Formula: DSCR = Net Operating Income (NOI) ÷ Annual Debt Service
A DSCR of 1.0 means income exactly covers the debt. Lenders typically require 1.25+ for commercial loans. A DSCR below 1.0 means the property loses money.
Example: Property earns $150,000 NOI per year. Annual loan payment is $120,000. DSCR = 1.25 (acceptable).