The One Number That Quietly Controls Your Deal: DSCR

There are a lot of metrics people throw around in real estate investing. Cap rate. Cash on cash. IRR. All important. But there is one number that quietly controls whether a deal actually works, especially when you are using agency debt.

DSCR. Debt Service Coverage Ratio.

Here is the simplest way to think about it. DSCR measures how comfortably your property can pay its own mortgage. It is your income divided by your debt payment. That is it.

If your property makes $125,000 a year and your annual debt payment is $100,000, your DSCR is 1.25. That means the property earns 25 percent more than it needs to cover the loan. Lenders love that.

For most agency loans, that DSCR needs to land around 1.20 to 1.25. Sometimes slightly lower or higher depending on the deal, but that range is the guardrail. Miss it, and the loan size gets cut. Or the deal dies.

This is the part many newer investors miss. DSCR directly drives loan proceeds. The stronger your DSCR, the more a lender is willing to lend. If your income is tight, the bank does not care how much you love the deal. They reduce the loan until the numbers work.

That is why I am obsessed with revenue. Rent growth, fee income, clean expenses. All of it flows back to this one ratio.

DSCR is not sexy. But it is powerful. And understanding it gives you leverage in every deal you analyze.

So when you look at your next opportunity, ask yourself this. Is the property barely surviving, or is it comfortably paying its own way?