DSCR from a rent roll: the formula, a worked example and lender thresholds
Debt service coverage ratio (DSCR) is net operating income divided by annual debt service. A rent roll drives the numerator: annualize in-place rent, adjust for vacancy and concessions, add other income and subtract operating expenses. Lenders commonly look for roughly 1.20x to 1.35x or more, depending on property type, program and lender.
Updated 28 October 2026. General information, not investment, lending, legal or tax advice. Practice differs by lender, program and jurisdiction.
What goes into the ratio
The numerator is NOI, built as in NOI from a rent roll. The denominator is the annual principal and interest on the loan, or interest alone on an interest-only loan. A ratio of 1.00x means NOI exactly covers the payment. Higher ratios leave a cushion for vacancy, expense growth and rate resets.
Lenders rarely use the borrower's NOI as given. Many apply a minimum vacancy factor, a management fee as a percentage of income and replacement reserves, and some size a loan on the lower of two tests, DSCR and loan to value. The specifics differ by lender and program, so read the term sheet.
Typical thresholds, hedged
Minimums quoted for stabilized property commonly fall between about 1.20x and 1.35x, with higher figures for property types seen as riskier or for leases that expire soon. Some programs quote lower figures for particular structures. Treat these as rough ranges, not rules. The term sheet governs.
How DSCR sizes a loan
Lenders also run the ratio backwards. With $240,240 of NOI and a 1.25x minimum, debt service cannot exceed $192,192 a year, which at the example rate supports a loan of about $2,670,000, if DSCR is the binding test. A rent roll error therefore changes loan proceeds, not only a ratio.
Calculating DSCR from a rent roll in six steps
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Prove the rent roll
Tie the rows to the printed total before using any figure. A misread row flows straight into the ratio.
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Annualize in-place rent
Add up monthly rent on occupied units and multiply by twelve. Use the lender's rent basis: base rent, or base rent plus recoveries.
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Apply the lender's income adjustments
Deduct the vacancy and credit-loss factor and any concessions, then add other income. If actual vacancy is below the lender's minimum, the lender's figure may govern.
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Subtract underwritten expenses
Start from the T-12, then add the management fee and reserves the lender requires. The result is underwritten NOI.
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Compute annual debt service
Twelve times the monthly payment on the proposed loan: principal and interest if it amortizes, interest alone if it is interest-only.
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Divide, then stress it
NOI over debt service is the ratio. Re-run it with rent, vacancy and expenses moved to see how much cushion the loan has.
How much cushion the example has
Take the $240,240 NOI from the 24-unit example. Against a $2,600,000 loan at an illustrative 6.00% with 30-year amortization, annual debt service is $187,060. The rate is not a quote or a forecast.
| Case | NOI | DSCR |
|---|---|---|
| As underwritten | $240,240 | 1.28x |
| Rent overstated by 2% | $231,883 | 1.24x |
| Operating expenses 5% higher | $230,640 | 1.23x |
| Two more two-bedrooms vacant | $197,280 | 1.05x |
| NOI needed for 1.25x | $233,825 | 1.25x |
At a 1.25x minimum the example has $6,415 of NOI to spare, 2.7%. A 2% error in the rent roll uses more than that.
What goes wrong
Using the seller's pro forma NOI
Pro formas can assume lower expenses or higher rents. Build NOI from the roll and the T-12 yourself.
Ignoring the loan type
Interest-only and amortizing loans give different debt service for the same balance and rate. Use the payment the loan will carry, including any step-ups.
Annualizing the wrong rent
Market rent on occupied units, or rent that includes charges, inflates the ratio.
Forgetting the lender's floors
A lender's minimum vacancy, fee and reserve can push underwritten NOI below the borrower's figure.
Quoting a ratio without its NOI definition
Two people who both say 1.30x may mean NOI before or after reserves, with or without the lender's floors. State which one.
Using a stale roll
A ratio run on a roll from months ago can miss move-outs. Use the date the lender uses.
How RentRoll Engine helps
RentRoll Engine addresses the first two steps. It checks a rent roll PDF's rows against the printed rent and area totals and shows annualized in-place rent. It does not compute NOI or DSCR and does not apply lender adjustments. Free: 1 file per day, up to 10 pages, no account. Files over 10 pages are converted up to page 10 on the free allowance; a page code converts the whole file, up to 150 pages. See pricing.
Questions about DSCR and rent rolls
What is the DSCR formula?
DSCR equals annual net operating income divided by annual debt service. A result of 1.25x means NOI is 1.25 times the loan payments for the year.
What DSCR do lenders require?
It varies by lender, program, property type and leverage. Minimums for stabilized property are commonly quoted between about 1.20x and 1.35x, sometimes higher. The term sheet or program guide is the only reliable source.
Does DSCR use the rent roll or the T-12?
Both. The roll supports forward-looking rental income. The T-12 supports expenses, other income and a check on collections. Lenders decide how to weigh them.
How does vacancy affect DSCR?
Vacancy lowers income while most expenses stay fixed, so NOI falls faster than rent. In the example, two more vacant two-bedrooms cut NOI by about 18% and DSCR to 1.05x.
Is DSCR calculated on interest-only payments?
On an interest-only loan, debt service is the interest alone, which gives a higher ratio than an amortizing payment. Some lenders also test the ratio on a hypothetical amortizing payment. Check the loan terms.
What is debt yield, and how does it differ?
Debt yield is NOI divided by the loan amount. It ignores rate and amortization, so it compares loans on income alone. Some lenders test it alongside DSCR.
Can a rent roll error change a DSCR?
Yes. In the example, a 2% overstatement of rent moves the ratio from 1.28x to 1.24x, below a 1.25x minimum. Tying the rows to the printed total is the cheapest check.