DSCR loan calculations

[Becky Elder]

Hi there! 

I've connected with a realtor in Ohio that often gets off market deals. There's a 21 unit off market deal available and the spreadsheet he sent to me has a lot of information with the cost, rental income, market rent, taxes, insurance then at the end of the spreadsheet it has the DSCR calculation.

Is this in regards to their numbers with the DSCR? I thought the DSCR was independent of your personal scenario, so I'm thrown off by them sharing this number - OR - I feel like I'm missing a piece to the puzzle, I've never done a DSCR loan before. Can anyone provide some guidance on this?

Any insight is appreciated! 

[Kristen L Garner]

Hi Becky! I do a ton of DSCR loans for my borrowers. While the loan product is called DSCR it is actually named after a calculation, debt service coverage ratio. The calculation is the monthly rental income divided by the monthly debt (interest, principal, taxes, insurance, and HOA if applicable) It is a quick and easy benchmark used in the measurement of an entity's ability to produce enough cash to cover its debt payments. Most investors aim for 1% or higher. Rates on the lenders end typically drop if the ratio reaches levels of 1.5%+ or 2%+ as that is considered a very good return on investment. Most lenders won't lend via DSCR if the ratio is less than 0.75%. You could take the DSCR calculation into consideration even if you aren't financing via a DSCR loan product. Best of luck! -Kristen