What is Debt Service Coverage Ratio (DSCR) and How to Use It

This video breaks down in simplified terms the concept of DSCR and provides examples of how investors and banks use it in real estate.
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The term DSCR stands for “Debt Service Coverage Ratio.” It is a financial metric used to evaluate a property's ability to generate enough income to cover its debt payments and to assess the risk and feasibility of a real estate investment.
While it is one of the more obscure metrics, it’s definitely one that you should become familiar with if you’re going to be dealing with any commercial and non-owner occupied loans for your rental properties.
Here's how it works:
In order to calculate the DSCR, you'll need to divide the property's net operating income (NOI) by its total debt service (TDS).
The NOI is the property's income from rent and other sources, minus all of its operating expenses. Operating expenses do not include TDS and TDS is all principal and interest payments owed to a lender for that particular property.
When doing this calculation, you would typically calculate it on a monthly basis, but it comes out to the same ratio on an annual basis as well.
DISCLAIMER: please note that the information contained in this video is for educational and entertainment purposes only. You should always consult your own attorney and your own financial and tax advisors before making any legal or financial decisions. This video is not intended to and does not create any attorney-client relationship between the content creator and the viewer. The views and opinions expressed in this video belong solely to the creator and do not reflect those of his law firm or any of his business partners.

[@SucceedREI]

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[@tigerblood6823]

This is a nice video, but your calculations for a 4 unit rental are not accurate. Taxes and insurance should not run half of your rent money/operating expense. That's insane amount of money. Maybe you should use a 3 bedroom house as an example next time. Make it more believable.

[@SucceedREI]

Taxes and insurance are just two,relatively small portions, of operating expenses. Other expenses are repairs, maintenance, capital expenditures, and vacancy. And all of them combined are easily half of the gross rent in most typical rental scenarios.