Look for lender NOI definition, annual debt service, rate resets, IO expiration, covenants, reserves, and trailing versus projected income.
Plain-English term
DSCR
A lender metric for debt-service coverage.
Definition that survives review
Debt service coverage ratio compares net operating income to required debt payments. Higher coverage means more cushion. In a real review, translate the term into the cash flow, priority, deadline, tax treatment, status test, or control right it changes.
Use it to test whether income covers required debt before distributions. If you cannot point to the exact document or calculation behind it, you have recognized the vocabulary but not yet understood the deal.
Why it matters
DSCR is not emotional. If income cannot cover debt, the lender does not care how inspiring the business plan sounds. This is why the term is not finished until you know who calculated it, what period it covers, and what happens if the friendlier definition is wrong.
A useful glossary entry should show where the word appears, what input changes it, and which connected term changes the answer next: NOI, Debt service, Cap rate.
How to use it in diligence
NOI / annual debt service = DSCR
$680,000 of NOI and $520,000 of annual debt service gives a 1.31x DSCR. That sounds fine until taxes or insurance jump.
People quote DSCR at closing and forget to ask what happens after the business plan starts losing arguments with reality.
Proof checklist
- The source period, calculation basis, and owner of the number are named.
- The term reconciles to the PPM, operating agreement, lender documents, tax schedule, underwriting model, or verification record.
- The downside version is visible before the optimistic version gets trusted.
Example, trap, question
$680,000 of NOI and $520,000 of annual debt service gives a 1.31x DSCR. That sounds fine until taxes or insurance jump.
People quote DSCR at closing and forget to ask what happens after the business plan starts losing arguments with reality.
- what DSCR looks like after rate changes, vacancy, taxes, and insurance. Cushion is only cushion after stress.
- What source document, schedule, or third-party evidence proves this term in this specific deal?
- Which connected term changes the answer next: NOI, Debt service, Cap rate?
Free - no catch PRSE / GUIDE
Want the glossary updates?
Join the list for new terms, articles, tools, and the starter guide.
Educational only. Not an offer to invest. Email is optional for updates; public resources stay public.