Please check my Math

When analyzing rental properties I use the BiggerPockets Rental Property Calculator. It is an easy tool to use and it can quickly show if a deal is worth pursuing. Assuming the deal is good, you get a loan from your favorite bank. Part of the loan application is to calculate your Debt Service Coverage Ratio or DSCR.

Your DSCR is a ratio of your net income divided by your monthly loan obligations. It is a measurement of your ability to pay all your loans. If this ratio is below 1.2 your bank is not likely to fund your loan. As your DSCR get higher banks get friendlier and loans get easier.

Well this started me to thinking. Do my rental properties have a DSCR? I think they do. I pulled out my BP worksheets. I looked at the expenses. The expenses include Vacancy, Capex, Water & Sewer, Repairs, Electricity, insurance, Property Taxes, and Points and interest (P&I).

For our purposes, I am removing the P&I and recalculating the expenses. In my case the total expenses equal $667.92 per month. My total income is $2,100.00 per month. My Net income is $1432.08.

Now if I were to do a DSCR calculation to my property I would divide 1432.08 by 667.92 This would give me a property DSCR of 2.144. So, from a certain point of view, if my property were to apply for a loan to buy it's self, it should get approved. But more importantly, If my personal DSCR is lower than the properties DSCR. Then the purchase will improve my finances. And make it easier to purchase more properties. If the property's DSCR is lower than mine, it will make my finances look worse. Thus make it harder to buy more properties.

As I have heard hundreds of times you make your money when you purchase.