Real Estate & Investing

Debt Service Coverage Ratio

Debt service coverage ratio, often shortened to DSCR, is the ratio comparing property or business cash flow to required debt payments.

Quick answer

Debt service coverage ratio, often shortened to DSCR, is the ratio comparing property or business cash flow to required debt payments.

It matters because lenders often use it to judge whether an investment property or business can support its debt.

A rental portfolio with weak DSCR may struggle to qualify for refinancing or new lending.

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Plain-English Definition

What Debt Service Coverage Ratio means

Debt service coverage ratio, often shortened to DSCR, is the ratio comparing property or business cash flow to required debt payments.

Why it matters It matters because lenders often use it to judge whether an investment property or business can support its debt.
Simple example A rental portfolio with weak DSCR may struggle to qualify for refinancing or new lending.
Related Questions

Questions people ask about Debt Service Coverage Ratio

What does Debt Service Coverage Ratio mean?

Debt service coverage ratio, often shortened to DSCR, is the ratio comparing property or business cash flow to required debt payments.

Why does Debt Service Coverage Ratio matter?

It matters because lenders often use it to judge whether an investment property or business can support its debt.

What is a simple example of Debt Service Coverage Ratio?

A rental portfolio with weak DSCR may struggle to qualify for refinancing or new lending.

When should I ask a CPA about Debt Service Coverage Ratio?

Ask a CPA when the term affects property tax planning, rental activity, depreciation, basis, or gain on a sale.

How is Debt Service Coverage Ratio different from Cap Rate?

Debt Service Coverage Ratio means Debt service coverage ratio, often shortened to DSCR, is the ratio comparing property or business cash flow to required debt payments. Cap Rate means Cap rate, short for capitalization rate, is the ratio of a property's net operating income to its value or purchase price. The difference is that they apply to different tax, accounting, or business situations and should not be treated as interchangeable.

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