8d • General discussion
📘 Term of the day 📘
Debt-Service Coverage Ratio - DSCR
- DSCR measures how much income a property produces compared to its debt payments
- Lenders use DSCR to determine whether rental income can support the loan
- It is also a measure investors should be familiar with to help with early deal valuations
🏠 Scenario:
An investor buying a 4-unit property with projected rents of $6,000/month and a mortgage payment of $5,000/month
- Rental Income by unit: ($6,000/4) = $1500 per unit
- Monthly Mortgage: = $5,000 between... PITIA
- Principal Mortgage Payment
- Interest
- Taxes
- Insurance
- Association Fees
In this scenario we see a DSCR of 1.20 - ($6,0000/$5,000)
- 1.20 Deal will qualify for most DSCR programs
- 1.00 & below options become limited and pricing increases (The property also isn't cash flowing appropriately)
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📘 Term of the day 📘
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