DSCR Formula: How to Calculate It (With Excel)
The DSCR formula is NOI divided by annual debt service. See how to calculate it by hand, in Excel, and how lenders use it to size commercial real estate loans.
The DSCR formula is Net Operating Income ÷ Annual Debt Service. A property with $125,000 NOI and $100,000 of annual mortgage payments has a DSCR of 1.25x — it produces $1.25 of income for every $1.00 of debt service. In Excel, the formula is simply =NOI_cell / DebtService_cell. Most commercial lenders require a minimum DSCR of 1.20x to 1.25x.
Debt service coverage ratio (DSCR) is the single most common test a commercial lender runs on a deal. It answers one question: does the property produce enough income to cover its mortgage payment, with a cushion? Get the formula wrong — or forget to annualize the payment — and your loan-sizing math is off before you start.
The DSCR formula
DSCR = Net Operating Income ÷ Annual Debt Service
Both inputs are annual figures:
- Net Operating Income (NOI) — annual property income after operating expenses and reserves, before debt service and taxes. See what NOI is and how to calculate it.
- Annual Debt Service — the total of all twelve monthly mortgage payments (principal + interest) for the year.
A DSCR of 1.00x means the property earns exactly enough to pay the mortgage and nothing more. Above 1.00x there is a cushion; below 1.00x the property cannot cover its own debt.
A worked example
A stabilized property produces $125,000 in NOI. The loan carries a monthly payment of $8,333, so annual debt service is $8,333 × 12 = $100,000.
DSCR = $125,000 ÷ $100,000 = 1.25x
At 1.25x, the property clears the typical lender minimum exactly. Every dollar of debt service is covered by $1.25 of income.
How to calculate DSCR in Excel
You only need two cells. Put NOI in one and annual debt service in the other, then divide.
| Cell | Label | Value |
|---|---|---|
| B1 | NOI | 125000 |
| B2 | Annual debt service | 100000 |
| B3 | DSCR | =B1/B2 |
Cell B3 returns 1.25. To format it the way lenders quote it, append an "x":
=TEXT(B1/B2,"0.00")&"x"
If your monthly payment lives in a cell instead of the annual figure, annualize inside the formula so you never forget the ×12:
=B1/(B2*12)
Where B2 is the monthly payment. If you are deriving the payment from a loan amount, rate, and amortization, use Excel's PMT function for debt service:
Annual Debt Service = -PMT(rate/12, years*12, loan) * 12
The leading minus sign flips PMT's negative (cash-outflow) result back to a positive number so the DSCR reads correctly.
DSCR formula in real estate loan sizing
Lenders do not just check DSCR — they run it in reverse to cap the loan. Rearranged for maximum debt service:
Max Annual Debt Service = NOI ÷ Minimum DSCR
With $125,000 NOI and a 1.25x floor, the maximum supportable annual debt service is $125,000 ÷ 1.25 = $100,000. That payment ceiling, combined with the interest rate and amortization, sets the maximum loan amount DSCR will allow.
DSCR is one of three loan-sizing tests. It runs alongside debt yield and LTV, and the lender advances the smallest loan any single test allows. The DSCR calculator computes coverage and maximum loan by ratio; the CRE loan sizing calculator runs all three side by side.
Frequently asked questions
What is the DSCR formula? DSCR equals net operating income divided by annual debt service: DSCR = NOI ÷ Annual Debt Service. NOI is annual income after operating expenses; annual debt service is twelve monthly mortgage payments. A result of 1.25x means the property earns $1.25 for every $1.00 of debt service.
How do you calculate DSCR in Excel?
Put NOI in one cell and annual debt service in another, then divide them: =NOI_cell / DebtService_cell. If you only have the monthly payment, multiply it by 12 inside the formula: =NOI_cell/(Payment_cell*12). To derive debt service from a loan, use =-PMT(rate/12, years*12, loan)*12.
What is a good DSCR for commercial real estate? Most conventional and CMBS lenders require a minimum of 1.20x to 1.25x, with 1.25x the most common floor. A DSCR of 1.25x or higher is generally considered healthy. Below 1.00x, the property does not generate enough income to cover its mortgage payment.
Is DSCR calculated monthly or annually? Standard commercial DSCR uses annual figures — annual NOI over annual debt service. The most frequent mistake is dividing annual NOI by a single monthly payment, which overstates coverage by a factor of 12. Keep both inputs on the same annual basis.
What is the difference between DSCR and debt yield? DSCR divides NOI by annual debt service, so it changes with interest rate and amortization. Debt yield divides NOI by the loan amount and ignores loan terms entirely. Lenders often run both because DSCR can be engineered with longer amortization while debt yield cannot.
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